Tax filing time is an ideal time to review your financial affairs. You have to gather information to prepare your tax return at this time. Why not take one more step and do something positive for your financial well-being?
The following suggestions will get you started on your financial review:
Hold a discussion with your family. Spouses and children need to share and prioritize their financial aspirations.
Review your credit use. Keep your credit card bills current. If you're finding that hard to do, it's probably time to cut up some of those credit cards and get your debt under control.
Organize your records. If you had trouble assembling data for your financial review, you need a better system. Set one up.
Internal accounting controls are vital to every business.
The boutique owner needs to be sure that all products are rung up and that all cash is deposited in the bank. The salon and spa owner needs controls to make sure that all services and products sold are captured.
Proper internal controls should be part of everyday procedures in a business. They should work in a way that helps prevent fraud and theft or detects them early.
Having an audit or review of your financial statements once a year will not necessarily detect fraud.
Every business should be sure it has set up an adequate system to safeguard all its assets- cash, inventory, equipment, etc.- with periodic reviews to be sure the controls are working.
Use the following checklist to review your internal control procedures. The list is not all-inclusive and is no substitute for a thorough internal control analysis.
Search Topic: Fraud and Internal Controls
What records should your business keep, and how long should you keep them? There are several categories of records that are important to a business, some for internal purposes and some for tax returns and other government requirements. Let's take a look at these by category.
Search Topic: Recordkeeping for Business
If you're like some taxpayers, you have a pastime that brings in cash but produces a loss after you deduct your expenses.
Example: an amateur boutique owner or stylist, who spends money for inventory and supplies and only occasionally sells a product or service.
If you could deduct "hobby" losses on your tax return, you could reduce taxes owed on your salary or other income.
Actually, you can deduct your losses, but only if you establish that you are carrying on your pastime with the motive of making a profit.
If you can't prove you have a profit motive, the IRS views your activity as a hobby, not as a business. Expenses of a hobby can be deducted only up to the amount of income from the hobby. You can't deduct hobby losses from your salary or other income.
You can help establish your profit motive in one of two ways. If you show a profit in three out of five years (two out of seven years for horse activities), the IRS will presume you've got a business and not a hobby. However, you can't simply manipulate deductions and income to create profit years.
The other way to demonstrate that you're operating with a profit motive is to conduct your activity in a business-like manner. Get advice from an accountant to assist with keeping accurate books and records. Maintain a separate checking account, advertise your services or products, and get a business phone listing. If you have losses, try to turn your business around by taking classes, consulting with experts, and changing your methods of operation. Be sure you spend enough time at your activity to demonstrate that you're serious about profits. Remember, you don't have to earn a profit, but you must try to do so. If you don't have profits in three out of five years, the burden of proof will be on you to show the IRS that this activity is a business and not a hobby.
If you want to turn your hobby into a business, contact us! We can assist you with the IRS requirements.
Search Topic: Hobby or Business
Take time to investigate the business thoroughly.
Don't be too eager. Many people feel they should get into the business and then worry about the problems as they develop. An investigation of all the problem areas may indicate that you shouldn't buy that particular business in the first place.
Make sure that the price is not too high. Many small businesses are not profitable enough to give an acceptable return on both the buyer's time and money. If the buyer wants $90,000 per year for working 60 to 70 hours per week and wants a 12 percent return on his $100,000 investment, the business must net $102,000. Analyze the past performance of the business you're thinking of buying to be sure it can satisfy your requirements.
If you are willing to take a reduced return on your time and money for the sake of self-employment, do so with your eyes open - know the facts.
Ask questions. Most buyers don't ask enough questions or require enough financial history to make an informed decision. Any business worth buying should have kept adequate records. The inability or the unwillingness to provide the proper financial information is an indication that the business may be overpriced.
The need for professional assistance when buying a business cannot be overemphasized.
Search Topic: Buying A Business
Planning to start a business partnership with a friend? Prudence demands looking at the pitfalls - as well as the potential strengths - of such relationships. Here are a few questions to consider.
Search Topic: Partnership Decisions
Here's what the banker needs ...
When you apply for a business loan, your request must meet certain basic requirements.
Your banker needs to have:
The banker also wants to know: