Record keeping is not just for pinheads.
Grand Tiki
you make the process, the more likely you will do it.
I recommend you immediately establish a box on the kitchen counter
that you use for EVERY SINGLE receipt that touches your hands. These
things get lost very easily and it is a TOTAL NIGHTMARE to have to
find them later.
As a rough rule of thumb, every $1 receipt you lose is about 30 cents
of
tax liability you COULD have deducted if you had kept it. There is no
"standard deduction" for business income like on your personal tax
return, (unless you operate as a "sole proprietorship", which has big
drawbacks) so you have to itemize your butt off unless you want Uncle
Sam as your silent partner.
The value of even little things (like a roll of paper towels at Dollar
General) will add up to surprising amounts over the year.
I'm serious when I say EVERY receipt. Make it a habit. Get a receipt
*every* time you buy gas, since driving to town to buy supplies is a
legitimate business expense, and you might need some "extra"
deductions later, even if that tankful of fuel is completely personal
use.
Big Hint: Avoid trying for the "home office" deduction. It doesn't
amount to squat in the end, and makes it *far* more likely you will
get audited. The IRS loves people who take home office deductions...
It makes it easier to pick their audit victims.
At intervals, on a set day ("Monday", whatever) you harvest everything
and compile your records. I use a regular old spreadsheet page, some
people use Quicken, others use regular paper logbooks. This
discipline means you won't get buried, and also allows you to spot
problems early.
As an example: Our ice truck drivers are paid commissions. I noticed
on my spreadsheet that the cost for ice, as a percentage of dollar
sales, started drifting up quite sharply. With no reason for this
evident my wife started getting up early, driving to the store to meet
the
delivery truck, and counting the blocks while "helping" to unload.
Immediately our ice/sales ratio fell right back to where it always had
been!
We pitched a fit with the company, and they made good on my estimates
of how much we had been shorted for the previous weeks. (Which is
*exactly* how a well-run business handles a tricky problem: by
thinking of
the long term return and not just the "cost" of fixing today's issue.)
Without those timely records, we would not have noticed the cheating.
BTW, that driver doesn't work there any more, but don't blindly trust
anyone to be honest; (Sadly, some folks in this world will sell their
honor or even their own children's virtue for $20 of crack.)
Another example: Our daily sales immediately jumped up $30-50/day
when
we bought a cash register to replace the old open cash box. (I can
only
assume one or more of the first batch of employees was directly
pocketing
cash.)
Our next thief got fired after we became suspicious and counted cups
in the building several times, comparing them to the number of cups
the register showed as being sold. We found a gross variance, even
accounting for wastage and "authorized" freebies. (We also found a
niece
not ringing up sales and instead stuffing the tip jar, so be aware
that even
"family" will do it.)
Another big hint: Don't hire family and friends. The employee/boss
dynamics often kill friendships (if they don't automatically assume
they are now your "partners") and Thanksgiving dinner can be
uncomfortable if you have to fire a cousin's kid for non-performance
(or whatever.)
Ask anyone in business, they'll say the same -- that is why it is a
cliche.
It is amazing how often you will find "feelings" and "assumptions" and
"I thought" statements to be wrong once you measure the reality with
cold, objective data. That isn't always easy to do, but the effort
(when
possible) always returns value greater than it's cost in time.
Many of the people we have talked to over the years seem to operate
their businesses as a hobby, and yet are still successful in spite of
themselves.
This is a fairly forgiving business (selling sugar to kids? Come
on...), but those people sharply limit their potential by never making
the mental transition from airhead, "how long till break" employee to
sharp, attentive business owner.
You will start to automatically evaluate and judge other businesses'
perceived deficiencies as you patronize them, as well as try to borrow
ideas from businesses that aren't even related to yours.
Example: Our local Chinese restaurant really needs to edge-scrub more
during mopping, paint the rusty legs of their tables, and would net a
lot more $$$ on soda if they had cold 2 liter bottles for families to
snag when picking up dinner. When I watch few , if any, "family-
sized" take-out orders will buy soda -- a high-profit item for a
restaurant.)
Welcome to the journey.