Set The Right Goal

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Insider tips to choose an accounting program. Are you opting for stress and uncertainty or ease and confidence?


Freshbooks or Quickbooks?

 

The rally cry for small business owners everywhere is ‘make it easy!’ At least when it comes to an accounting program.

 

Can you blame us? We small business owners are the office decorator, web designer, sales person, pricing specialist, cleaner, and accountant. And that’s before you do what it says on your business card.

 

The business card that you designed yourself, amirite?

 

It’s easy to see why expense tracking software has gained ground in a big way versus a traditional accounting program. They promise effortless transaction records and that’s appealing to a small business owner whose hair is figuratively on fire. And for $20 a month? Take my money.

 

But then, in a year or so when your business taxes are due, you’re going to feel the pain of using an expense tracker. Your bookkeeper or accountant will manually adjust your Freshbooks entries at a cost of dollars to you, or you’ll have to go back and do it yourself. Depending on your business it could be mucho dollars!

 

But why does a choice in accounting program matter?

 

Why do we bother with bookkeeping anyway?


I came up with three reasons:

To be aware of what’s happening in our businesses,

To reduce the tax we pay,

or, simply to satisfy the tax man.

 

What do we need to reach any of the three goals above?


Accuracy.

 

 

And sadly an expense tracker isn’t accurate.

 

While it’s shiny and appealing, it’s not worth it.

 

Once upon a time not that long ago, accounting programs were hard to use. Now they’re easy. Perhaps inspired by the beautiful interfaces of expense programs.

 

So you don’t need an expense tracker. No matter what the ads say.

 

Now you can have the ease of use of an expense program, mobile operation for mileage tracking and receipt storage (gas receipts are the bane of my existence) and have the full power of an accounting system, for the same price (or less!) as an expense tracker.

 

It’s an easy choice.

 

(Pick the accounting program.)

 

My # 1 Worth its Weight in GOLD Tip to Do Your Own Bookkeeping

How to Budget for Business – Part 4: Business Goal

Your business goal is one of the most important factors in determining your budget. As the saying goes, how are you going to get somewhere if you don’t know where you’re going.

Your revenue business goal provides the basis of your budget. By working from your goals and your current expenses, you can estimate what your next year will look like.

So, what do you want for your business? What do you want for you, out of your business?

 

How To Set Your Revenue Business Goal

Let’s reverse engineer this. What do you want from your business? What would be ideal for you? Think in terms of your lifestyle, revenue, and social goals. 

Once you’ve come up with an amount you want to earn, decide if that amount is before or after taxes. If it’s before, add 30-40% for taxes. 

Is that goal more than you earned from your business last year? Is it less? Calculate your variable expenses using your goal. Will you have to make any changes to your fixed expenses to be able to do so much business?

Finally, add everything together to get your revenue goal for the year:

 

Your Variable Expenses (for your business goal)

Add

Your Fixed Expenses

Add

Your (personal) Income Goal

Add

Your Projected Taxes

Equals

Total Business Revenue Goal

 

Now that you have your business goal, what can you do with it?

Play with your business goal to come up with sales goals for your products and services. Chop your goals up into weekly chunks and track your progress each week. 

That last part was really important so I’ll say it again.

 

Track your progress on your goals each week.

 

It’s simple. It’s easy. It will take you 5 minutes each week. But it’s important so don’t skip it.

Share the progress with everyone in your business who impacts sales. 

 

Take Action
Find your revenue goal for your business and make a tracking sheet.

 

That’s the simple way to budget for your business. If you missed any of the earlier articles, check them out below. 

Calculating Your Fixed Expenses

Calculating Your Variable Expenses

Calculating Your Business Taxes

 

Take Control of Your Money

How to Budget for Business – Part 3: Business Taxes

Business taxes. They’re basically just a variable expense, but they get their own category. 


Did you just fall asleep? 


Wake up! I promise not to make your eyes roll back in your head. If you hand your tax papers in The Black Box (aka your accountant’s office) and have no idea how your taxes owing comes out of there, this is for you.

 

How do business taxes work? To sum it up, you owe a certain percent of your profit to the government. Notice that I said profit and not total sales.


Simple, if not a little mafia-y, right? Yes! Except for the 8 million exceptions to that simple rule. That’s why tax accountants are important – they know all the exceptions.


So how does a simple girl from {insert your home town} figure all of this uncertainty into her budget.


You Guess!
Err… I mean make an educated estimate. This is where knowing your fixed expenses and variable expenses pays off.


It goes like this:

 

Your Income Goal

(subtract)

Your Fixed Expenses

(subtract)

Your Variable Expenses For That Income Goal

Equals

Projected Profit


Then you estimate your tax rate on your profit. To do that, either talk to an accountant or Google it. In most cases you’ll want to use your personal income tax rate and not the corporate or business tax rate. You’ll probably be taking that money out of your business.


So then we have:

 

Projected Profit

*multiplied by*

Tax rate (as a decimal)

Equals

Savings for Taxes

 

 

Example
You start that company where they mail glitter to people. You’re an evil genius. 

Glitter picture

Actual photo of me ruining a coworker’s birthday.


You rent a small space because you don’t want glitter all over your house (smart) for $300 a month, including utilities and phone line. Your website costs you $50 a month. 

Fixed Expenses = $350 a month


It costs $0.10 for an envelope, $.05 for a letter, $.20 for glitter, and $1.00 for a stamp for each order. And Paypal takes $0.35 per order. 

Variable Expense = $1.70 per order


Your goal for the month is to sell 200 envelopes of the herpes of the craft world, and your personal tax rate is about 30%.

 

Your Income Goal :$10 x 200 = $2000

(subtract)

Your Fixed Expenses = $350

(subtract)

Your Variable Expenses For That Income Goal: $1.70 x 200 = $340

Equals

Projected Profit: $2000 – $350 – $340 = $1310

*multiplied by*

Tax rate (as a decimal): 30% = 0.30

Equals

Savings for Taxes: $1310 x 0.30 = $393

 

 

BOOM! No surprises when you take your taxes in. 

 

Take Action
Find the percent tax rate in your area. Calculate what to save for business taxes for your last month of business. 

 

If you missed any of the articles in the budgeting series, check them out below. 

Calculating Your Fixed Expenses

Calculating Your Variable Expenses

Calculating Your Business Goal

 

Take Control of Your Money

 

How to Budget for Your Business – Part 2: Variable Expenses

If you missed last week’s blog on fixed expenses, you can read it here.

 

Knowing your variable expenses is extremely valuable. It lets you know exactly what you’re putting into your products and services. In turn, that leads to easier decisions on pricing, easy goal calculations, and confidence in what you’re charging.

 

What are variable expenses? They are the fluctuating expenses in your business. The cost of adding one more hour to a service or one more hat to a hat order. 

Some examples are the cost of material to build a product, mileage to and from a job site, the hourly wage of your employees who complete your services, and even your taxes.

Variable expenses might fluctuate with the size of an order, for example when your cost goes down for ordering in bulk. 

 

Example
You have a cleaning business, and you have two employees who go out and do the cleaning while you work in the office. Your variable expenses for one job might look something like this:

 

Hourly rate per employee: $15

Vacation pay per employee: $.32 per hour

Mileage rate: $.54 per mile

Cleaning products: $1.22 per hour (avg)

Servicing vacuum cleaner: $2 per hour (avg)

 

 

Some of these are really easy to calculate. The hourly rate you pay your employees is easy, since it’s set. Same with the mileage.

Calculating how much it costs for the vacuum cleaner servicing and the cleaning products is more complicated. To get that number, take the cost for the year and divide it by the number of hours you billed for the year. If you don’t have that information yet, you can guess. Make sure to update your estimates once you’ve been in business for a bit. 

If you add up these expenses it works out to $18.54 per hour in variable expenses, plus travel. Since travel is calculated per job you’ll have to add it up by the distance and divide it by the number of hours your employees are spending at the job. Alternatively you can take the average mileage per hour for past jobs and add it to your hourly rate for a rough idea.

 

Take Action
Print out your last few months of bank and credit card statements and go through them looking for variable expenses. Write them all down and add them up. Then calculate the number of hours you billed over the same period. Divide your variable expenses by the hours you billed to get your average variable cost per hour. 

Don’t miss the rest of the budget for your business series:

Calculating Your Fixed Expenses

Calculating Your Business Taxes

Calculating Your Business Goal

 

Take Control of Your Money

How to Budget for your Business – Part 1 Fixed Expenses

Starting a business is really easy.

Often, it’s as easy as declaring you have a business and starting to sell stuff. Easy, fast, no permission needed.

It’s amazing, when you think about it, how much opportunity is right at our fingertips. Changing your life is as easy as deciding to change your life and taking action.

The downside to all this opportunity is that it’s easy for people to avoid the boring yet so important stuff like budgeting, planning, and doing your finances. You know, the nuts and bolts of running a business.

Skipping the financials might work for a while if you have a really profitable business with low overhead. If you haven’t looked at the money side, if you’re profitable, you’re lucky.

In this 4 part series I’ll tackle how to set up your finances so that you can increase your profits and know your business inside out.

In this first section I’m going to tackle fixed expenses.

 

What are fixed expenses? They are the constant expenses in your business. Expenses that don’t change no matter how many units you sell month to month.

Some examples are the rent on your building, the salary of your employees who aren’t paid hourly, your website hosting, garbage pickup, electricity, a loan repayment.

Fixed expenses may eventually change, like when you decide to move to a bigger building, but your rent won’t double if your orders increase one month.

 

Example
Let’s say you’re a life coach and you work from home. This is what your fixed expenses might look like.

Calendar system $10/month

Business community subscription $30/month

Virtual Assistant $400/month

Business coach $500/month

Bank fee $20/month

Bookkeeper $125/month

Website hosting $20/month

If you add that up it’s $1105/month. Those are the monthly fixed expenses of this life coaching business. 

 

Take Action
Print out your last few months of bank and credit card statements and go through them looking for fixed payments. Write them all down and add them up for your monthly fixed expenses.

 

If you missed any of the articles in the budgeting series, check them out below. 

 

Calculating Your Variable Expenses

Calculating Your Business Taxes

Calculating Your Business Goal

 

Take Control of Your Money