Small Business Finances Tips

IRS-Direct Sellers

Direct sales companies (MLM, Network Marketing, Party Plans) have many different ways of filing taxes. To find out how to handle your direct sales tax issues, order the free IRS publication #911 "Tax Information for Direct Sellers."

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Up To Date

Rather than stuffing all of your business records (invoices,
receipts, statements) in a file to be sorted through at the
end of the year, be proactive. Balance your business accounts
at least monthly. Keep a ledger or log of your sales, purchases,
and misc expenditures. The more often you do it, the easier
it will get. By the end of the year, you'll be all set to
file your taxes without encountering a huge mountain of paperwork.

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Think Twice

Before buying that latest and greatest organizer, or that
really cute pencil caddy, think twice. Will this purchase
increase my income or promote my business better? Get a
handle on frivolous business expenditures and you'll see
a larger bottom line!

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Taming Receipts

Does tax time make you shudder? Can't remember how much you spent or what you spent it on? Here are a few simple tips for keeping track of those business expense receipts:

*put receipts into envelopes (one envelope per month) as you receive them.
*put receipts into envelopes (one envelope per type of expense, ie: supplies, advertising)
*have a checking account or credit card just for your business and put ALL of your business transactions through it.

You will receive monthly (and sometimes annual) statements showing just who you paid and for what.
You'll have a much easier time sorting through it all at the end of the year (as well as being able to see
where you might adjust your spending).

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Balancing Your Bank Statement

Begin with:
Ending Balance from Bank Statement

Add: Deposits in Transit (deposits you've made that are not yet recorded at the bank)
Subtract: Outstanding Checks (checks you've written that have not yet cleared the bank)

Computed Book Balance

Balance per Your Books (account balance per your checkbook)

Difference (should be zero)

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Unnecessary Purchases

When purchasing something for your business, especially when you're first getting started, think first--is this item/investment going to make me money? Will it promote or in any way advance my business? If not, think twice again before spending the money.

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IRS-Tax Guide for Small Business

Need general Small Business tax filing information? Send for the IRS free publication #334 "Tax Guide for Small Businesses".

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IRS-Self-Employment Tax

Not sure how to handle your Self-Employment Tax? Not sure what Self-Employment Tax is? Order your free IRS publication #533 "Self-Employment Tax".

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Financial Management

The first step in developing a financial management system is the creation of financial statements. To manage proactively, you should plan to generate financial statements on a monthly basis. Your financial statements should include an income statement, a balance sheet and a cash flow statement.

A good automated accounting software package will create the monthly financial statements for you. If your bookkeeping system is manual, you still can use an internal or external bookkeeper to provide you with monthly financial statements.

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Do you know how much is in your bank account?

Bank reconciliations must be done every month! If you do not accurately account for deposits made and checks written then you will inevitably end up bouncing checks because of lack of funds. You could literally waste hundreds of dollars a month in check charges to your bank by not knowing exactly how much money is in your bank account at all times.

Don't just sit there - Go reconcile that bank statement!

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Small Business Budgeting Simplified

Budgeting in it's simplest form is evaluating:

Revenue minus cost of goods sold, minus expenses equals profit.

Projecting for each category monthly will help you to
- keep sales revenue goals high enough to cover cost and expenses
- keep expenses down – say ‘no' to unnecessary expenditures
- realistically view your pricing to see if there is adequate profit built in to cover the running of your business.
If you don't have a budget…it could be hurting your business!

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Tax Education

Free* Tax Education for small business owners is offered by the IRS.

Small business owners and other self-employed individuals can learn about business taxes through a unique partnership between the IRS and local organizations. Through workshops or in-depth tax courses, instructors provide training on starting a business, recordkeeping, preparing business tax returns, self-employment tax issues, and employment taxes.
For more information about this program, call your local IRS office Monday through Friday during regular business hours and ask for your Taxpayer Education Coordinator.
You can also call 1-800-829-1040.

*Some courses are offered free as a community service. Courses given by an educational facility may include costs for materials and tuition. Other courses may have a nominal fee to offset administrative costs of sponsoring organizations.

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Bulk Mail

Did you know that with as few as 200 pieces of mail you
can take advantage of Bulk Mail prices at your Post Office?
Check your local Post Office for details, but here's an
example of one use (amounts are approximate):

*Annual Catalog Mailing = 300 pieces @ $1.50 each = $450

*With Bulk Mailing: minimum of 200 identical pieces, must be
sorted and bound by zip code (sort labels by zip code
before printing!), annual Bulk Mail License fee $85/yr,
per piece cost about $.50 each, for a total annual cost of
$235--a savings of about $215 per year!

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IRS-Business Use of Car

Do you use your personal vehicle for business? Check out free IRS publication #917 "Business Use of Car" to see what you can deduct.

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Quarterly Filing

As a self-employed individual, you may want to look into filing your taxes quarterly. At some point, you may even be required to do so. While on the surface, it may seem like more of a hassle-doing your taxes four times a year, it's really not as complicated as it sounds. Essentially, you will estimate your tax liability for the upcoming year (based on your prior year's taxes) and pay it in four quarterly installments. This is beneficial in that you are not hit hard at the end of the year with a whopping tax bill due.

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Fly For Free

How much money do you spend on your business every year?
If you're in MLM you might actually put a lot of money "through"
your credit card as you place orders while your customers pay you
by cash or check. Why not make this money work for you?

By using an airline credit card, you may be able to get a free
flight every year! For example: If you put all of your customer's orders
on your airline credit card, and they pay you cash or check, you can build
airline miles points and pay off your card every month (thus no extra
interest expense). Most airline cards offer about 1 mileage point for
each dollar spent. With only 25,000 points, you can cash in for a free flight!

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Sample Income Statement (P&L)

Revenue:
Gross Sales
Less: Sales Returns and Allowances
Net Sales

Cost of Goods Sold:
Beginning Inventory
Add:
Purchases
Freight-in
Direct Labor
Indirect Expenses
Less:
Ending Inventory
Cost of Goods Sold

Gross Profit (Loss)

Expenses:
Advertising
Amortization
Bad Debts
Bank Charges
Charitable Contributions
Commissions
Contract Labor
Credit Card Fees
Delivery Expenses
Depreciation
Dues and Subscriptions
Insurance
Interest
Maintenance
Miscellaneous
Office Expenses
Operating Supplies
Payroll Taxes
Permits and Licenses
Postage
Professional Fees
Property Taxes
Rent
Repairs
Telephone
Travel
Utilities
Vehicle Expenses
Wages
Total Expenses

Net Operating Income

Other Income:
Gain (Loss) on Sale of Assets
Interest Income
Total Other Income

NET INCOME (LOSS)

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Sample Balance Sheet

ASSETS

Current Assets:
-Cash
-Accounts Receivable
-Less:
Reserve for Bad Debts
Merchandise Inventory
Prepaid Expenses
Notes Receivable
Total Current Assets

Fixed Assets:
-Vehicles
Less: Accumulated Depreciation
-Furniture and Fixtures
Less: Accumulated Depreciation
-Equipment
Less: Accumulated Depreciation
-Buildings
Less: Accumulated Depreciation
-Land
Total Fixed Assets

Other Assets:
-Goodwill
Total Other Assets

TOTAL ASSETS

~~~~~~~~~~~~~~~~~~~~~

LIABILITIES & CAPITAL

Current Liabilities:
-Accounts Payable
-Sales Taxes Payable
-Payroll Taxes Payable
-Accrued Wages Payable
-Unearned Revenues
-Short-Term Notes Payable
Total Current Liabilities

Long-Term Liabilities:
-Long-Term Notes Payable
-Mortgage Payable
Total Long-Term Liabilities

Total Liabilities

Capital:
-Owner's Equity
-Net Profit
Total Capital

TOTAL LIABILITIES & CAPITAL

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General Records Retention Guideline

Audit Reports: Forever
Bank Deposit Slips: 6 Years
Bank Statements: 6 Years
Canceled Checks: 3 Years
Current Contracts and Leases: Life of Contract, plus 3 Years
Housing Records: As long as you own the home, plus 3 Years. (Includes home improvements, additions, expenses involved in selling/buying home)
Insurance Records: Forever
Investment Records: 6 Years after sale of investment. Discard monthly statements once you receive annual summary that reflects yearly activity.
IRA Contributions: Forever
Legal Correspondence: (Marriage Certificates, Death Certificates, Divorce Papers, etc.): Forever
Real Estate Records: Forever
Receipts for Appliances, Computer Equipment, etc: Life of Asset, plus 3 Years
Tax Returns and Supporting Documentation: Forever
Warranties/Guaranties: Life of the Product

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How Do I Pay My Taxes?

The best place to find out how your business handles taxes is to go to the source - the IRS. The IRS has a very informative website where you can download just about any publication or form you may ever need--and instructions to go along with them! If you feel you must talk to a human being about these matters then you may also call your local IRS office (numbers found in your local phone book or online). But be prepared to wait--on hold while waiting for your call to be answered and by your mailbox while waiting for your info to be mailed.

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Develop a System

When developing a system for keeping your books, remember to keep it simple, otherwise you`ll spend more time minding your books than minding your business. For a small business, a simple spreadsheet can be set up to record your sales/income, your expenses (be sure to categorize these!), and your inventory if you have it. There are many off-the-shelf software packages that you can simply install and begin using without much customization. Often these programs are designed to grow as your business grows and are usually compatible with other programs you may be using for other parts of your business, such as contacts, planners, and other databases.

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Educate yourself

Ignorance of the law is not an excuse. See your accountant and learn how tax laws affect you and your new business. He/she can save you a lot of heartache and fines later on.

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IRS-Sale of Assets

When disposing of business assets, be sure to check out free IRS publication #544 "Sales and Other Disposition of Assets".

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Sample Balance Sheet

*CURRENT ASSETS:
Cash
Accounts Receivable
Less:
Reserve for Bad Debts
Merchandise Inventory
Prepaid Expenses
Notes Receivable
*TOTAL CURRENT ASSETS

*FIXED ASSETS:
Vehicles
Less: Accumulated Depreciation
Furniture and Fixtures
Less: Accumulated Depreciation
Equipment
Less: Accumulated Depreciation
Buildings
Less: Accumulated Depreciation
Land
*TOTAL FIXED ASSETS

**TOTAL ASSETS

*LIABILITIES & CAPITAL
Current Liabilities:
Accounts Payable
Sales Taxes Payable
Payroll Taxes Payable
Accrued Wages Payable
Unearned Revenues
Short-Term Notes Payable
Short-Term Bank Loan Payable
Total Current Liabilities

*LONG-TERM LIABILITIES
Long-Term Notes Payable
Mortgage Payable
Total Long-Term Liabilities

*TOTAL LIABILITIES

*CAPITAL:
Owner's Equity
Net Profit
*TOTAL CAPITAL

**TOTAL LIABILITIES & CAPITAL

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Sales Taxes

As a seller, you are generally responsible for seeing that the taxes are paid to the state(s) you in which you do business. If your business involves taxable sales of property or services, you should be prepared to handle the following obligations:
*Registration - the first thing you should do is to secure sales permits for each of your business sites.
*Collections - because you usually collect sales taxes from your purchasers, you'll have to account for your sales taxes with each taxable sale.
*You will also need to know when you don't need to collect because purchasers have asserted valid claims for exemptions (as with tax-exempt organizations)
*Payments and returns - once you've collected the tax, you then need to remit the taxes with the appropriate returns to the appropriate tax agencies.

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