Small business owners have a lot to keep in mind as they run their regular business operations, including liabilities. A liability is something for which a person or a business is legally responsible, most often financially. As you put together your business budget and plan the next month’s expenses, one thing to keep in mind is the set of things you or your company might be liable for. In this post, we’ll cover three of the most common liabilities for businesses and how best to address them in your financial plan.
Liability 1: Workers’ Compensation & Medical Claims
Depending on the sort of business that you operate, your employees may be exposed to some hazards. Jobs involving manual labor, like construction, working with electrical wiring, or working with heavy machinery in any capacity, are some of the most common subjects of medical claims and worker’s compensation claims.
However, even regular office contexts can be hazardous, as workers suffering from carpel tunnel or eyestrain may similarly make a claim for compensation. Even the toughest folks are not impervious to medical issues, so it’s likely that at some point, as a business owner, you’ll encounter a medical claim.
One of the best ways to handle this is to have in place a reliable system for medical claims payment processing. That way, when it comes time to pay what’s due to an injured worker, claims management software will keep you in-the-know on the status of the claim and inform you of how much is likely to be charged.
Liability 2: Debts
Most people don’t have the few hundred thousand in liquidity it takes to start up a business. While plenty of people get investors to help them with startup costs, many more find it’s necessary to take out a small business loan in order to keep up with startup and operating costs.
Most small business loans will come with a maturity date – that’s the amount of time you have to pay back the amount you owe. They also require monthly payments or else you might find yourself paying thousands extra in late fees and interest.
As you plan your month’s expenses, be sure to include loan repayments upfront. Too many businesses go bankrupt because they prioritize unsustainable growth before managing their existing liabilities, and loan debts tend to be among the top liabilities small businesses face.
If you find that keeping up with your loan payments is too taxing for your business, it might be time to consider refinancing your business loan. The most coveted option for this is an SBA loan, backed by the Small Business Administration, as they have significantly lower interest rates than many competitors. Just know that these loans are competitive, so you may have to look into other refinancing options if your application is denied.
Liability 3: Taxes
Managing and filing your income taxes can be a headache before owning a small business, but once you’ve opened up shop and have started to profit from your business, the tax situation becomes much more complicated.
Small business taxes are a liability for two reasons:
- Simply, they are an amount of money that you owe, which makes them a liability.
- They require time and effort to get right, which means time that isn’t being spent on your business.
The IRS can be punishing in its investigations of would-be tax dodgers, so ensuring that you complete your small business taxes correctly every year is essential to keeping out of legal trouble and ensuring your time is spent on your business strategy and not on dealing with an audit.
If you’d rather not spend a week locked in your office with mountains of paperwork to comb through every year, it might be wise to invest in a tax help professional to aid with completing your small business taxes. This manages your liability in that you are able to spend time on the work that really matters, and it lessens the risk that a critical mistake leads to a devastating audit. It may seem like a hefty price up front, but the benefit due to the avoided risk is often well worth it.
Small businesses face many challenges and expenses. Keeping track of your business’s liabilities is an important step in calculating the total amount you spend monthly. Don’t miss out on an opportunity to optimize your liability management – consider using one of the tools discussed here today.