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Ten Mistakes All Business Owners Should Avoid – Mistake Number 7

T. Randolph Catanese, Esq. © 1998

Mistake No. 7 – The Government Is not A Good Source Of Borrowed Funds. You might say, what do you mean by this? Isn’t the Small Business Administration a good lender and shouldn’t I be seeking them if I have a small business? The answer is yes – you should be seeking out the Small Business Administration or other government sponsored lenders if you are a small business and you need some help. But that is not what I am referring to – rather, in this case, I am referring to people who do not make their payroll tax deposits on time, fail to make their contributing deposits on time, fail to maintain adequate worker’s compensation insurance, or fail to make sales tax deposits or otherwise fail to remit government monies as and when they become due. Many times a business which is strapped for cash will stop making these payments believing that things will get better in the future. When things do not get better in the future, the obligations increase and become stifling. Moreover, the government takes the position, whether you own a corporation or not, that if these payments are not made you as the majority shareholder or the responsible manager have a “100%” obligation to pay these monies. That means that if you are operating a business and you fail to make these payments, you – yourself – have the responsibility individually to pay the money if the business ultimately becomes insolvent or is shut down. To make matters worse, besides having to repay the money which should have been deposited, the government also charges a high rate of interest and applies late penalties as well. In severe cases, the government might even place a lien against your personal real estate or assets to secure repayment of the monies.

If you are tempted to use the government as a lender, be sure you understand the consequences of what that means. You may come to a point where you are unable to make the contributing tax deposits and if that is so you will seriously need to reevaluate whether you can continue to keep on employees. You may need to let the employees go and reorganize your business using independent contractors who get paid a fee for their services. Again, there are always alternatives to poor business methods. These alternatives may not be appetizing, but if all goes bad at least you will have protected yourself individually.

You may contact a small business lawyer Ventura County or Los Angeles county at Catanese & Wells If you own a small business and want to learn more about using a Small Business Administration or other government sponsored lenders,.