Financial Fortunes
Understanding finances and how to keep track of your finances can make or break your business. Keeping track of your finances is especially important for small cash based businesses. It is very easy to forget or lose track of what you make, the taxes you need to pay on your sales, and what was sold if you don’t develop a system to keep track of everything. This can land you in hot water not only with the IRS and your state, it will also make it hard when you need investors or try to get a loan from a bank.
Many small businesses don’t realize the importance of keeping good records. They want to try and hide some of their income in order to keep taxes down. However, while this might save them a few dollars in the short term, this gamble could really hurt in the long run. If the IRS finds out that you are not properly reporting all your income, including any cash tips or sales from other items that are not the main part of your business, they will not only collect the back taxes for that income, they will also impose fines and charge interest on the back taxes owed.
There are plenty of good accounting systems available that will help you keep track of your inventory, sales, invoices, expenses and income. I frequently use Quickbooks. Ask your accountant or other business owners for what they recommend.
Preparing for Tax Season
After being laid off during these difficult times, many Americans have started their own small businesses. Now that the year is over half over, these small businesses need to start thinking about their upcoming tax returns. Today we will be focusing on proper documentation of expenses.
Most expenses that businesses deduct from their income need to be properly documented. What is proper documentation of an expense? It is a receipt for the expense, a canceled check, or a bill for the expense. The documentation required varies depending on the type of expense being deducted. For example, dining expenses must be documented by a receipt that has the name and location of the restaurant, the number of people served, and the date and amount of the expense. Generally, I like to take a restaurant receipt and write the name of the people who attended the business dinner and the general business matter discussed on the back of the receipt. This way, even if I can’t remember the specific meeting several months later when preparing the business taxes, there is a reference that shows that it was a legitimate business expense.
For other questions dealing with business receipts and documentation, check out IRS publication 463.
My Money Journal
I started keeping a journal about money so I can track down where I am spending the money. I always carry my money journal wherever I go. Every time I spend for something, I write it down on the journal and it makes my monthly budget planning easier.
Some may find it tedious or time consuming but still it is the best way tracking your expenses.
A Couple of Things to Consider Next Time Your Unemployed
Pay up expenses for a few months if possible. What I mean by this is that take a certain amount of money up for each of your major expenses such as lights, phone, and housing and pay those expenses up for a period of time. I have been in a situation where I was being laid off and I took either some savings or severance and paid up expenses for a while. While this may seem like a quick drain on resources, it will help to alleviate pressure of having to come up with those expenses right away and will give you some breathing room to find a new job.
Consider taking a lower paying job or some different type of job to help pay the bills. People are accustomed to living a certain lifestyle and they usually want to move into a similar type job once they leave an old job. Sit down and figure out what your true monthly expenses are, minus things such as cable, internet access, entertainment, etc. That is the amount you need to survive. Afterward, you may want to think about taking a lower paying job, some short term contracts, or a different type of job while you’re looking for the job you want. There is a certain company in my area that is my “backup plan” whenever I am unemployed. If the job market is particularly slow or I don’t have a lot of backup cash, I go there and get a job. I have worked for this place on four separate occasions and they always take me back because they always need workers. Its simple customer service work and pay is enough to keep things going while I look.
The above tips may not be an option for you, but it’s at least something to consider the next time your unemployed.
5 Tips to Help Cut Back Expenses
Most everyone at one point in their life is going to go through a period where finances are short for a long period of time. Sometimes it’s due to the loss of a job, sometimes it’s due to a major hospital stay, or a new child, or maybe you’re just starting out on your own. For whatever reason, you need to learn how to cut back on expenses so that you don’t run up more debt. Here are 5 tips to help you in that respect.
Reduce your utility bills. Take steps to help cut down on your light bill by cutting off unused lights, turning off the computer when not in use, using high energy appliances less, etc. If you have a water bill, cut down on the consumption of hot water and water in general, especially during the summer. If you make a lot of long distance calls, reduce the amount of time your on a phone, or even get an unlimited long distance plan.
Reduce or eliminate your cable or satellite bill. If you have an extensive DVD collection and are able to get basic TV channels without cable or satellite, then cut out that bill. If you have to have cable, then get basic cable. Stay away from all the fancy packages. There are plenty of channels on basic cable.
If you have both a phone and a cell phone, get rid of one. In today’s age, unless you have a real need to have both a home phone AND a cell phone, the extra phone is just a luxury. Also, if you are someone that has very low talk time on the phone, you may want to think of going to a prepaid plan on your cell phone.
Reduce entertainment expenses and unnecessary travel. This may mean telling your friends that you cant go to the big game or to the movies with them some of the time, but in the long run this can really rack up some saving.
Get rid of your vices. This is the hardest thing to do for some people. I know a lot of people that talk about how they are broke all the time or are complaining about money, yet they still are able to keep themselves in cigarettes, beer, or whatever their vice may be.
Taking some of the steps above can help reduce monthly expenses and help get you through hard times and help you avoid going into debt.