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Small businesses make a lot of financial mistakes: commingling business and personal funds, not reporting taxes, not paying taxes, breaking a variety of labor-r

Small businesses make a lot of financial mistakes: commingling business and personal funds, not reporting taxes, not paying taxes, breaking a variety of labor-related rules, etc. Sometimes this is accidental, and sometimes it is intentional. When your clients are small businesses, you will find they have a wide range of business and financial and legal acumen, and some will lack basic professionalism in most areas. That's especially common in the case of small family businesses. I used to work at a company that targeted both small businesses and enterprise companies with different versions of the same product. Dealing with enterprises was predictable: they know about corporate governance, they have legal and accounting teams, etc. Every small business was a wild card. If your clients have not been paying taxes so far, they might be afraid of owing back taxes or fines if they start engaging with the tax system and their past behavior is discovered. Also, some of them are probably avoiding taxes on purpose, maybe because they are crooks, or maybe because they simply cannot afford to pay. You probably aren't going to convince them to start paying taxes just to use your product unless it is incredibly compelling for them.

sicp-enjoyer 4y ago
Absolutely this. Many small businesses (probably many food trucks) are only profitable because they do not pay taxes.
- nly 4y ago
  That sounds odd, given that in most(?) countries businesses only pay taxes on their profits.
  - ComodoHacker 4y ago
    In many countries, small businesses pay taxes on gross income. Basically sales tax.
    - nemetroid 4y ago
      Are you saying that many countries with VAT have exceptions for small businesses? The number of countries without VAT arguably doesn't add up to "many". (of course, this is not relevant to the discussion at hand about a business in the US)
      - ComodoHacker 4y ago
        I don't know exactly how many, but I know about 5 with VAT and exceptions.
      - isbvhodnvemrwvn 4y ago
        VAT is not the only tax you pay. In Poland, depending on the kind of business you are running, apart from the value added tax, you are also paying tax on either profits or revenue (depends on what you do, if you do software - revenue tax is preferred because the rate is lower and you have effectively zero costs). Of course it gets further complicated if your company is a standalone legal entity, but in that case you have a lot more funny scenarios, e.g. you can go to jail for acting against the interest of the company you are the sole owner of.
      - kazinator 4y ago
        All countries have an "exception" for cash transactions. However, only within limits; the government investigators can indirectly infer and estimate unreported revenue.
  - sicp-enjoyer 4y ago
    Worthwhile for the individual. The business itself pays tax on the net, but the individual pulling money out of the business receives income and must pay income tax AND the additional social security tax. Alternatively, if it's cash only, they receive 100% of the cash and skip all that.
- galfarragem 4y ago
  Most would be still profitable if they paid all due taxes. The problem is that, in many of them, it wouldn’t worth the hassle.. long hours, wearing multiple hats to make ends meet, hard to disconnect, etc. Most small businesses aren’t fed by VC nor expect an exit. Most are just mundane and boring activities where people expect to receive a premium over a regular job. Or that or they close. Tax avoiding, in many cases, seems to be the path to get there.
jesterson 4y ago
> Small businesses make a lot of financial mistakes: commingling business and personal funds, not reporting taxes, not paying taxes, breaking a variety of labor-related rules, etc. Perhaps I wouldn't call those a "mistake" or attribute it solely to small businesses. Large corporations do exactly that - and easily getting away with it due to multitude of reasons.
- tpetry 4y ago
  > Large corporations do exactly that - and easily getting away with it due to multitude of reasons. Large corporations don't pay taxes because of taxation tricks. These small business don't pay taxes because they never fill a tax report.
  - ozim 4y ago
    It is also a lot easier for tax authorities to target large corporations than dig into pile of small businesses.
    - majewsky 4y ago
      Large corporations have thousands of people working on the balance sheets, though, therefore the balance sheets are much more inscrutable than those of your cookie-cutter barbershop or restaurant business.
    - pwinnski 4y ago
      At least in the US, the opposite is true. The IRS targets small businesses rather than large corporations because the small business are easier targets, while the large corporations have lawyers who fight on every point.
  - jesterson 4y ago
    And? What's the point of your comment?
archontes 4y ago
I saved some money buying a pair of "driven once" tires recently. I was told that due to some regulation or another, no reputable tire shop was legally allowed to install them on my vehicle. I was forced to find a mom and pop shop who would do it for cash. When 'professionalism' degrades experience, a basic lack of professionalism is exactly what people are shopping for.
- yurymik 4y ago
  I am a bit confused here. Does it mean that all tires should be single use and no one is allowed to have summer/winter/performance sets?
cosmodisk 4y ago
Having had to deal with small, often family owned business, I can only concur. The spectrum is so wide that even in the same sector two competing companies operating a couple of miles apart can be so different than it's almost hard to believe.

sicp-enjoyer 4y ago

Absolutely this. Many small businesses (probably many food trucks) are only profitable because they do not pay taxes.

nly 4y ago
That sounds odd, given that in most(?) countries businesses only pay taxes on their profits.
- ComodoHacker 4y ago
  In many countries, small businesses pay taxes on gross income. Basically sales tax.
  - nemetroid 4y ago
    Are you saying that many countries with VAT have exceptions for small businesses? The number of countries without VAT arguably doesn't add up to "many". (of course, this is not relevant to the discussion at hand about a business in the US)
    - ComodoHacker 4y ago
      I don't know exactly how many, but I know about 5 with VAT and exceptions.
    - isbvhodnvemrwvn 4y ago
      VAT is not the only tax you pay. In Poland, depending on the kind of business you are running, apart from the value added tax, you are also paying tax on either profits or revenue (depends on what you do, if you do software - revenue tax is preferred because the rate is lower and you have effectively zero costs). Of course it gets further complicated if your company is a standalone legal entity, but in that case you have a lot more funny scenarios, e.g. you can go to jail for acting against the interest of the company you are the sole owner of.
    - kazinator 4y ago
      All countries have an "exception" for cash transactions. However, only within limits; the government investigators can indirectly infer and estimate unreported revenue.
- sicp-enjoyer 4y ago
  Worthwhile for the individual. The business itself pays tax on the net, but the individual pulling money out of the business receives income and must pay income tax AND the additional social security tax. Alternatively, if it's cash only, they receive 100% of the cash and skip all that.
galfarragem 4y ago
Most would be still profitable if they paid all due taxes. The problem is that, in many of them, it wouldn’t worth the hassle.. long hours, wearing multiple hats to make ends meet, hard to disconnect, etc. Most small businesses aren’t fed by VC nor expect an exit. Most are just mundane and boring activities where people expect to receive a premium over a regular job. Or that or they close. Tax avoiding, in many cases, seems to be the path to get there.

jesterson 4y ago

> Small businesses make a lot of financial mistakes: commingling business and personal funds, not reporting taxes, not paying taxes, breaking a variety of labor-related rules, etc. Perhaps I wouldn't call those a "mistake" or attribute it solely to small businesses. Large corporations do exactly that - and easily getting away with it due to multitude of reasons.

tpetry 4y ago
> Large corporations do exactly that - and easily getting away with it due to multitude of reasons. Large corporations don't pay taxes because of taxation tricks. These small business don't pay taxes because they never fill a tax report.
- ozim 4y ago
  It is also a lot easier for tax authorities to target large corporations than dig into pile of small businesses.
  - majewsky 4y ago
    Large corporations have thousands of people working on the balance sheets, though, therefore the balance sheets are much more inscrutable than those of your cookie-cutter barbershop or restaurant business.
  - pwinnski 4y ago
    At least in the US, the opposite is true. The IRS targets small businesses rather than large corporations because the small business are easier targets, while the large corporations have lawyers who fight on every point.
- jesterson 4y ago
  And? What's the point of your comment?

archontes 4y ago

I saved some money buying a pair of "driven once" tires recently. I was told that due to some regulation or another, no reputable tire shop was legally allowed to install them on my vehicle. I was forced to find a mom and pop shop who would do it for cash. When 'professionalism' degrades experience, a basic lack of professionalism is exactly what people are shopping for.

yurymik 4y ago
I am a bit confused here. Does it mean that all tires should be single use and no one is allowed to have summer/winter/performance sets?

cosmodisk 4y ago

Having had to deal with small, often family owned business, I can only concur. The spectrum is so wide that even in the same sector two competing companies operating a couple of miles apart can be so different than it's almost hard to believe.