In continuing with the January theme of cleaning up, cleaning out & polishing your business processes, you had to know I’d blog about business taxes at some point. Don’t worry, this isn’t a number heavy post and has nothing to do with actually filing your taxes (although I do plan to write a post on making filing your taxes easy soon!), it’s more about what you can learn from doing your taxes each year!
Every January I stress, sweat & freak out about doing my taxes. I don’t know why, but it’s only gotten a million times worse since I started filing for my own business. I have a really efficient system so all in all it only take about one hour total to do my taxes, but until I’m done (and the return has been approved) I’m a hot mess. But all that aside, I have been able to learn a lot about my business and make some pretty significant changes that result in higher profits year after year when I really break down the numbers I’m putting into my return. So below, I’m going to list a few things you should really, really scrutinize when filing your taxes this year.
How efficient is your system?
If you find yourself scrambling around, spending days on end sorting out your numbers, trying desperately to find receipts and emails so you can claim deductions on your taxes, stop. Breathe. Get through this filing. Plan for next year. There is a million ways to organize for tax time. Some people go fully automated with online tools, some people use an accountant, some people do spreadsheets. It’s important to find a system that is minimal effort, easy to use & easy to understand. The less time you spend on book keeping and taxes, the more time you can spend making and marketing your awesome products!
What I do is use one of those coupon binders to sort my receipts by month, then a $1 planner from the Target dollar bin to write monthly recurring expenses in. As email receipts come in, I save them into an email folder called “TAXES DON’T DELETE THESE!” (Or you could use a simpler filing name and just put “taxes”) and then I just have to open that folder up and input those expenses into my planner.
In the planner, I sort my expenses by type per tax filing:
- Office Expenses
- Internet/Advertising Expenses
I also sort income by online sales & craft show sales, then total it out at the end of the year.
Then I flip through my planner and add each group of expenses together for the totals. Then all my numbers are ready to put into my tax return. Like I said, it only takes me about an hour to complete my taxes & file. Ideally I try to input numbers and total out my expenses/income once a month, but find that after 4-5 months I’m backlogged and playing catch up at tax time – but thankfully, with such an easy (for me) system in place, it takes no time at all to input the numbers! I have debated switching to a digital system but ugh, I’m on a computer so much as it is, and I prefer to have the hard copy of the receipts in my hand when I do my digits. I’m old school like that.
Anyway, point is – tweak your book keeping processes until you find a system that keeps everything in place & easy to file.
Your expenses were HOW much?!
The first few years I did my taxes, I was mortified by how much I was spending on supplies. It was majorly cutting into my income. In order to make Lu & Ed sustainable but more importantly profitable, I had to cut expenses because I don’t prescribe to the whole “in order to make more money you need to charge more” mentality. So I made it a goal to cut them by half 3 years ago – and ended up cutting them by 75%! My total expenses that next year? Less than $400! That’s counting business cards, fabric, online expenses (ads, domain hosting, WordPress theme, etc). Shipping is not included in that expense, because it is paid as part of customer’s orders, so I don’t even consider it a real “expense”.
By reevaluating where you are investing your hard earned money, you can drastically lower your overhead and start generating much higher profits. Some tips for cutting costs:
- Do not buy supplies if you don’t absolutely need them. Sure, having a fabric stash is nice, but it takes up a buttload of space, and then I’m spending money I don’t need to be on materials that are just sitting there not making money. If you do not have an order waiting on that material, or a project in mind for it that you will make in the very close and coming future, do not buy it. Whatever it is. Not buying material I didn’t need cut my costs by more than half. This is what saved me the most money.
- Check your monthly fees and eliminate whatever you can. Whether that’s a paid blog ad (remember how we talked about using Google Analytics to find out what venues are bringing you sales? Yup, review that – if that ad hasn’t made 3x what you’ve paid for it, get rid of it) or a service you don’t use daily or a paid subscription to a community (again, use Google Analytics – can you track sales directly to paid communities and groups? If not, it’s a waste of money), eliminate these expenses ASAP.
- Don’t order business cards, postcards, thank you cards, stickers, hang tags, tissue paper, twine, whatever, just because it’s on sale. (Note, don’t buy anything just because it’s on sale). If you aren’t down to your last 50 business cards, don’t order more unless you have a big craft show coming up. Cut out any promo materials you don’t need to send out. Don’t want to part with them? Combine them, if possible. I am about to reorder my post card/thank you card/business card combo things. They have space to write a sweet little message, all my biz info and a code for 15% off on the back. One item doing the job of three, for a fraction of the price.
- Source cheaper promo materials when you do need them. I have switched from Moo and Vistaprint to GotPrint.com – it’s a fraction of the cost for amazing print work!
Now for the nitty-gritty – evaluating your income
This part can suck, especially if you are angling to make your indie biz your full time gig. But take a peek at those numbers after all your expenses are deducted. Really look at those numbers. Are they where you want them to be? If not… Are they where they need to be to reach where you want to be next year if you double your efforts? Why or why not? What are you going to do to get them where you need to be?
If your numbers aren’t where you want/need them to be, figure out how much more inventory or how many more sales you need to generate over the next year to get them where you need to be, and set up a plan of attack to get there! (If they are, woohoo! Keep on kicking booty & taking names, you indie biz master!)
For instance, last year’s numbers really disappointed me – granted, I took just about a third of the year off due to divorce & moving half way across the country. And I will give myself the grace that until now, Lu & Ed was a part time endeavor, and that’s partly why those numbers disappointed me, and now I’m gunning it full time. But, in order for me to make Lu & Ed viable as a sole source of income, this year I have to basically almost double what I made last year, both production & sales wise. Hence my 500 Monsters in 2016 project. In order to generate a higher number of sales, I’m starting a brand enthusiast campaign and teaming up with some awesome makers for holiday collaborations in order to reach new audiences.
Now go make 2016 the best year ever!
Hopefully this mini series on reviewing, refining and reforming your indie biz has helped you tidy up & set things in motion to make 2016 your most stress free, efficient, profitable year yet! I’m using my own advice in these posts to grind away the rough edges of my business so I can smoothly transition this into my full time sustainable income gig!