4 Common Mistakes Entrepreneurs Make That Lead to Criminal Charges

Entrepreneurs have to balance a lot of responsibilities, and sometimes details will fall through the cracks. But if you’re starting a new business, you don’t want to let innocent oversights related to finances and compliance derail your efforts. Even if you’re working hard to do everything the right way, one wrong step can land you in legal trouble. 

Keep reading to learn about four common mistakes entrepreneurs make that can lead to criminal charges, and what you can do to avoid them.

1. Making Accounting Mistakes

When startup founders are trying to make the most of lean budgets, it’s easy to get sloppy with accounting. Failing to report a business expense or source of income, for instance, can turn into a costly problem. Similarly, missteps on taxes may be innocent, but the repercussions can be significant if the government deems a mistake as fraudulent. Financial records that seem vague or insufficient may be subject to more scrutiny by the IRS if your taxes are flagged. 

If you’re a founder, you can’t afford to let your cash flow go unmanaged. Investing in accounting help may feel like one more cost to shoulder. But you’ll end up with an airtight accounting system that ensures business and personal finances never mingle. You’ll also have stronger documentation and regular audits to help prevent unfortunate financial surprises. 

2. Misleading Investors

Every new business needs a little help to get started. And that means reaching out to investors to raise capital and earn support. But exaggerating your business’s financial potential can backfire. You could end up facing charges of misrepresentation, and you may find yourself having a consultation with a criminal defense lawyer.

It’s not worth the risk to mislead investors and gloss over losses or other financial challenges. It’s far better to be transparent at all times and provide documented reports that show accurate growth projections and quarterly results. Let a trusted legal resource look at your documents before distributing them to potential donors to make sure they are telling an honest story.

3. Failing to Be Compliant

New business owners need to know the logistical details that go into being compliant. After all, businesses like restaurants or new financial institutions are subject to regulations. Your business may need special licenses or permits to operate legally. And if you fail to meet compliance standards in your industry, you could face steep fines or worse penalties. When in doubt, seek legal assistance so you’re not overlooking any critical details related to compliance. 

4. Classifying Employees Incorrectly

Are you withholding taxes from your employees’ paychecks? If you’re not, your workers may not be classified correctly. Even if you’re operating a small new business, your teams must be considered employees, not independent contractors. 

It’s best to check with the IRS to be clear on requirements, given the size of your workforce and industry. And, of course, you can reach out to an attorney to verify that you’re doing everything properly before opening your business. 

Don’t Forget the Details

Entrepreneurship can be a rewarding endeavor, but don’t let the high hopes for success cloud your judgment on financial or regulatory matters. Make sure you’re documenting and reporting finances accurately, and be transparent when you’re attempting to raise capital. And work with attorneys and accountants who can help you stay compliant. Taking these extra steps can protect your reputation and get your business off to a healthy start.