This One tip Could Improve your Bottom Line

So, I realize another tax year is now in the books. We as business owners have just spent a significant amount of time going through our yearly records, organizing documents, making appointments with accountants, etc. Tax season is a busy time of year that most of us dread. There are many different ways, however to make this time of year one to not only survive, but to look forward to. It’s like a new beginning, closing out last year while continuing on with the business at hand. We are making plans for a better and better future. Things will be different this year…

 

Ok, so maybe that goal is a little lofty.   There are a few things in life that are meant to be survived and taxes, for you, could be one of them. There is, however, one important, small task that can make a huge impact on the bottom line of your business and could put a positive spin on taxes for you.

 

If you are in the retail business you know that you have to pay out sales tax. When you pay out sales taxes, it is with money you don’t have to pay taxes on.  Forgetting to deduct sales tax from each sale increases your total sales amount. This increase in total sales in turn increases the amount of taxes due.

 

This oversight can be easily fixed in your accounting software by simply inputting a tax rate on sales categories. According to  Xero.com “The Sales Tax Report in Xero is a summary showing sales tax charged or paid by your organization for the tax period being reported. It is made up of a Sales Tax Summary and a Sales Tax Audit Report. Sales tax for the period is calculated based on when and how you have entered transactions into Xero and what tax rate you applied to each line item.  It can be tracked using the Sales Tax Audit Report. If you have set up your sales tax rates to match the rates (and individual rate components) you are required to file based on the tax return or other document from your country or state, it is likely that you will be able to copy the figures calculated for a tax period from Xero onto your tax return.”

 

So, making this small change in the way you run your business day-to-day could greatly reduce the amount of work to be done around tax time as well as increase some of your tax benefits. In future posts I will be talking more about the importance of working with a good accounting software package. I am a Xero certified bookkeeper and would love to answer questions you might have about getting started down this road.

 

 

Let's Talk Systems

What comes to mind when you hear the word systems? Some people I know thrive on systems. They have a list and “work the list” in order to accomplish what needs to happen for the day. Others cringe when they hear this word. I, for one, have found the days I work with some sort of system go much more smoothly than days that I abandon  systems all together.

We have systems for getting things accomplished at home, work, even for free time. If you are running a business there can be several different areas where systems are important. Many of the the things you do that benefit your business everyday may require little to no thought. However, think about all the things in your business that are time consuming and difficult. You might procrastinate on these things simply for a lack of system.

Bookkeeping is an area that needs a defined system and dedicated time. If you set up a way to file receipts, maintain accurate records and view important reports on a regular (monthly, quarterly) basis, you will begin to see many benefits within the financial state of your business.

Benefit #1: Your system will save time and money during tax season. This can be a stressful time for many business owners. Your time can either be spent looking up and gather information from the last 12 months of business, or simply send all the information that has been gathered, organized and reported on throughout the year. CPA’s can be very expensive. They are necessary for filing taxes and very helpful for being up to date on and following tax laws. The more time they spend gathering and organizing your information, the more hours they can bill.

Benefit #2: An organized system will provide necessary documentation in the event of an audit. Being audited is very inconvenient for any business owner, but even more so for the owner who is not prepared for it. Having documents, receipts, invoices etc organized could accelerate the auditing process.

Benefit #3: SYSTEMATIZING your bookkeeping will enable you to make decisions on how to MAXIMIZE your business’ potential. If your financial reports are only run for the benefit of banks and accountants, this leaves little benefit for you. By running reports regularly, you can see which direction your business is going and decide if you want to keep going that direction.  You may find that altering your direction will bring more profitability.

So, where to start? First, look at the system you currently have for bookkeeping. If you find it is effective then great, you’ve got a system that works. If, on the other hand, you see a piles of unorganized receipts yet to be filed, or you haven’t reconciled your bank account in 3 months, or maybe 3 years, then it’s time to start setting up your system.

I would suggest starting with one area at a time. Maybe it’s categorizing receipts, or maybe you go back and reconcile one month of your bank account each week until you get caught up. Don’t try to fix everything at once. Good luck.

I am happy to help get you started on your journey to getting your books up to par. Please leave comments below, or contact Michelle@lighthousebookkeeping.info

Check out our website www.lighthousebookkeeping.info for more information.