You should be spending more time on your financials than you are

Financials, bookkeeping, and accounting are an often-avoided part of business. After all, most business owners we know would rather be building their business, innovating, marketing, selling, and counting their cash than sitting down with their books and filling in spreadsheets. In fact, I believe that if we were to measure the knowledge and time spent on various aspects of business, the financial side of the business would be abysmally low.

Yet I would argue that your business’ financials are critical. They make sure that your sales will actually turn into profit. They make sure that your taxes are paid and you won’t be hit with tax liens and fines.

Wherever I see businesses fail, it’s often in the area of financials. Sure, some businesses fail because they don’t sell enough product and other businesses fail because they are poorly managed, but many businesses simply have to shut down because their financials weren’t in order: Expenses were too high, prices were too low, there was never enough money to fund operations, there was never enough money to invest a little on growth.

One business I know of struggled for long time before finally deciding to do something about its financials. A quick look revealed that its expenses were keeping up with income. As soon as the business owner knew that, she raised her prices slightly and got control of her expenses, and completely transformed her business.

Another business I know of was really successful, selling a lot. But at the end of the year, they were hit with a tax bill that was higher than they anticipated and it took them years to pay it off. Had they used better financial management, their tax issue would have been minimized considerably.

Yet another business I know does fairly well, even through the most recent recession. The owner couldn’t understand why he was barely getting by. A quick look at his financials revealed, however, that his receivables were a mess and he may have been earning an on-paper income and paying taxes on it, but few customers were paying him.

So, what should you do in your business?

Step 1: Get your finances in order! Presumably that’s why you’re even at IAC-EZ. Bring some order to your finances and get that aspect of your business under control.

Step 2: Spend more time than you currently are on finances. Yes, I realize no one really wants to spend a lot of time on their finances but it will make a huge difference in your business. (Check back next week because I’ve got an entire blog post just on this topic!)

Jessica Routier, IAC-EZ

Uncle Sam to You: “Thanks for the loan”

When you need to borrow money from a bank or lending institution to buy your house, you get a mortgage. It’s a loan and you pay that money back over time with interest.

When you need to borrow money for a car, you get financing or a bank loan. Both are loans and you pay that money back over time with interest.

When you want to buy something on credit, you pull out your credit cards and buy it. Guess what. Your credit card is a kind of loan and you pay the money back with interest.

Throughout the year last year, you paid taxes to the government. After filing your tax return, you might be expecting some money paid back to you. Guess what. That’s a loan, too. It’s a loan you made to the government. Now here’s the bad news: It’s interest free. You overpaid and you’re getting your money back. But it was yours to begin with.

At this time every year, I go on a mission to tell people not to get too excited about their tax return. They didn’t get money from the government. Instead, the government paid them back what they had overpaid.

So, when you get your money back from the government, you should do three things:

First, you can celebrate (but just make sure you’re celebrating for the right reasons).

Second, you should do a few things with that money (and this article gives some good suggestions).

Third, make arrangements to reduce the amount of taxes you pay through the year so that next year you don’t get as much back. The perfect tax return should be one where nothing is owed and nothing is refunded – “absolute zero”, so to speak.

Jessica Routier, IAC-EZ

What next?

Now that tax season is over, it can be tempting to file away the thought of taxes until next year when you need to do them again. Instead, we recommend making a few small changes right now while your thoughts of taxes are still fresh on your mind. Yes, it’s slightly annoying to extend out all that thinking-about-taxes for another day or two but it can save you time and money through the year and it can save you plenty of hassle and frustration when you do your taxes next year.

Here’s what we recommend:

Change how you file through the year. Think about the sorting, filing, and digging through a mountain of paper that you did this year. How can you change that next year? I’ve seen other people who have a filing system that they stick to diligently and think they’re being really disciplined when in reality, the filing system isn’t “attuned” to the information they need on their taxes so they still have to do the sorting and filing in a year’s time. Avoid that hassle by thinking about the information you need at your finger tips and how it’s sorted in your taxes and create files to that effect.

Schedule earlier. If you do your taxes yourself but tend to procrastinate, why not schedule some tax prep into next year’s schedule right now. Yes, right now! But break it up over a few weeks so you only have to do a few minutes a day. Schedule a reward at the end.

Find a tax preparer. Is the pain of taxes really worth it? If not, find a tax preparer. Here are some tips I found to help from the Herald-Dispatch.

Read this stuff: I’ve mined the web looking for some great ideas to help people prepare for taxes. Some of it will mention this year’s tax season but most of the information is relevant for any tax year. This isn’t necessarily “tax season” information. It’s mostly good ideas to implement into your life and business throughout the year so that tax season is way less painful:

• Avoiding Small Business Tax Mistakes
• Small Businesses Can Avoid a Tax Time Train Wreck
• How to Minimize the Pain of Small Business Taxes
• One Year to an Organized Financial Life
• Nine Simple Things to Do to Get Ready for Tax Season Right Now
• Simple Tax Strategies to Maximize Your Tax Refind
• Tax Organization Tips for Freelance Writers
• Take Steps to Minimize the Pain of Small Business Taxes
• Five Tax Trends Every Business Should Follow In 2010

Yes, the last thing you WANT to be doing right now is thinking about taxes. But a few minutes now, while it’s still on your mind, will make a world of difference throughout the year and during next tax time.

Jessica Routier, IAC-EZ

9 Things to Do When You’ve Finished Your Taxes

Today is Tax Day for Americans! Today goes by a couple of other names: I like to call it, “the day when procrastination kicks us in the butt” day. Our Canadian neighbors like to call it: “Don’t bug the Americans today” day.

Presumably, you’re all rushing to get your taxes in on time and those of you who are reading this have either forgotten that today is tax day or you’re enviably diligent and filed your taxes early. But for those of you who are just putting the finishing touches on your taxes, here are 9 things you should do when you’re done:

1. Mail your taxes. (haha, OF COURSE you’re going to do that).
2. Put $3.75 in the swear jar for all of the things you said when you were trying to decipher the forms and instructions.
3. Be thankful you don’t live in Sweden, which has more than twice that tax burden that you do.
4. Take your dog for a walk, breathe deeply, and remember that you don’t have to do this again for another 12 months. The same feeling you have after you go to the dentist, actually.
5. Set up a better filing system for next year’s taxes while the pain of this year’s filing and sorting is still fresh in your mind. (Believe me, this is going to be super-helpful throughout the entire year).
6. Tell your spouse you love them and you didn’t mean all those things you said when you were stressed about where your income was going.
7. Tell your kids you love them but that they’d better get good-paying jobs to support you when you retire.
8. Outline 5 things you learned from this year’s taxes that you will do differently next year (start earlier, work through the year to take advantage of more deductions, start a tax-sheltering religion, etc.)
9. Stop at the grocery store, buy a small box of tea bags, and dump it in the harbor… as a reminder AND a warning! (Just kidding. Our attorneys want us to make it clear that we are not advocating pollution).

Tax day, like the dentist, isn’t fun. Even if you don’t owe money, you still end up sweating through complex forms. But today’s the big day and if you can push through, you can coast until next year!

Oh, and if you’re realizing that you won’t get your taxes in one time, here’s an article about filing extensions.

And now that you’ve filed, you’re probably wondering how likely you are to get audited.

Happy Tax Day!

Jessica Routier, IAC-EZ