Entrepreneurs try to keep the
Internal Revenue Service at a comfy distance. But when your business is in hot water, it's time to get real friendly.
Eleven years ago I discovered this the hard way when I took over as president of a small Philadelphia based multimedia company.
After a month and several calls from irate suppliers, the bookkeeper informed me that my predecessor had kept two sets of books -- one for banks and investors and a second with the real facts -- which revealed that we owed 63 vendors a total of $500,000.
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Worse, we owed the government $20,000 for past employee taxes, $10,000 in quarterly income taxes to Pennsylvania and almost $50,000 to the federal government for quarterly income taxes.
The vendors, who had no legal claims on our assets, could only take us to court. My most immediate concern was the IRS.
Don't Wait for the Letter
So how do you tell the IRS your business hasn't paid its taxes in two quarters?
As preemptively as possible.
Most wait by the mailbox and hope that warning letter never arrives.
I jumped in my car and drove 20 minutes to the local IRS office.
The shocked receptionist, who had worked there over a decade, told me nobody had ever come forward without being summoned.
Shock 'Em With a Plan
I presented the office manager with a 28-page business plan and financial projections.
Equally befuddled -- no one had ever come to him with a business plan -- he brought in one of his veteran case workers, and we arranged a deal where my company would pay $5,000 a month plus interest.
In return, the IRS would not put any liens on the business or the owners' personal assets as long as we made our payments on time.
Had I run or waited for the warning letters to start coming, the IRS probably would have seized my company and put liens on our assets until the bill was satisfied.
Instead, they actually trusted us enough to excuse a late payment a few months later and asked me to speak about my approach at a regional seminar.
The IRS is no different from any other business. It is measured by how effectively it collects receivables. As a result, it relies on relationships of trust and mutual respect.
Not everyone can save their business from bad decisions, but no matter how dismal your situation, get to the IRS quickly -- business plan in tow.
If you're reasonable, you'll find the people there actually are, too.
Marc Kramer, a serial entrepreneur, is the author of five books and is an instructor at the University of Pennsylvania's Wharton's Global Consulting Practicum, where he serves as Country Manager for Chile.