Record keeping is a critical part of any business, and a task most of us don't like. Without a clear picture of your income and expenses, it is impossible to monitor the financial health of your business and make sound decisions. Many small businesses fail because they choose to ignore or postpone the task of record keeping.
eBay is fun. We all love the shopping, and some of us even like listing and shipping. Keeping accurate and current financial records isn’t anyone’s favorite activity. But neglect this task and it will come back to haunt you. I am speaking from the heart and from experience when I say that if you want to create a home business that will take care of you in the future, you must put a record keeping system in place.
One of the most important reasons to keep thorough records is to enable you to monitor the financial health of your business. Records can help determine if your income is covering your expenses and leaving room for growth. It’s important to keep accurate financial information throughout the year so you’re not stuck with a nasty surprise at tax time. Money in your bank account does not equal success in all cases.
I can’t tell you how many times I have consulted with clients about growing or fine-tuning their business, and they do not know simple numbers like their monthly profit. If you are not keeping track of your numbers, this is a recipe for disaster later. And most importantly, sales does not equal profit. I am shocked at how many eBay sellers don't know what percent of their sales they are actually keeping. Those charts on eBay and Paypal are pretty, they don't account for expenses like tools to monitor your listings.
Good record-keeping habits can also help make tax preparation smoother and less expensive. If you don’t keep track of expenses properly, you may miss out on deductions. CPAs charge by the hour. If your records are not organized, you will pay for more work because the CPA will need more time to sift through your documents to find information to complete your returns.
Staying organized saves time. If you don’t ever get behind, you won’t have to spend days getting caught up. Plus, you’ll be ready to make a decision to purchase on any expense when you know its a tax deduction, you'll need to offset additional 2017 income. To stay current, it’s important to have a good system in place.
Use a system that keeps information accessible so you can quickly find, at any given time, to know for certain where your business is and what's needed to do your taxes, Use it as a guide to manage your business to avoid any surprises at tax time.
If you setup your system with all the federal and state deductions available, its more likely that income from your business will show a loss ON PAPER, allowing you to keep your income to spend more in 2017 for improvements or growth.
Whatever system you use, keep good records in these categories...
- Inventory orders (Cost of Goods Sold)
- Monthly Sales
- Year-End Sales Totals
- Profit Loss