By Garrett Baird, President and CEO of The neat society
Would you rather meet a skunk in a crawl space or pull out a clog of hair longer than you are tall instead of dealing with the books of your plumbing business? If this is your case, this article should go a long way in helping you learn what to follow, develop a solid plan to make your records consistent and ready for tax time, and ultimately keep your books. without grime.
Track all your expenses
You can’t measure what you don’t track. It’s no secret that running a plumbing business involves a lot of the necessary costs, such as tools, vehicles, payroll, offices and advertising expenses. Knowing how much money your business is spending and where it’s being spent is key to making sound financial decisions.
While meticulously documenting these expenses is essential, this level of precision and accuracy can easily be achieved if you follow a few tips.
Don’t mix up your business and personal expenses
When you run from one home plumbing emergency to another so often, especially as a small business or self-employed plumber, it’s easy to afford to use your personal bank account and a personal credit card to make your payments. After all, you may think your tax preparer will be able to sort out what’s what. But why spend an evening or a day off sorting through receipts with a tax preparer when you can set up separate accounting systems creating a business bank account and getting a credit card to use for business purposes only? While you can do the extra work of identifying business expenses among your personal records (or personal expenses among your business records)—and some financial software can even help you do that—your goal is to make note of both of these. items as painless as possible. .
Credit card statements often categorize expenses so you can see where your money went. You may visit a home improvement retailer to purchase something for your home as well as your business. Using separate cards for each purchase means the work-related item will be properly tracked for write-off. And the credit card is much better than cash, where you can end up with a receipt that you lose or can’t read when it’s time to balance your books or file your taxes.
Record everything you spend on your business
Bank and credit card statements are a great start, but every penny you spend on your business needs to be tracked. While not child’s play, paying attention to your business expenses will lead to a smoother tax season and more effective decisions regarding business expansion, acquisition of new assets like trucks, or employees to hire and how to bill.
First, make the effort to know which expenses are deductible. The IRS publishes a guide every year called Post 535 if you want to get very, very deep into the weeds on the matter (although the 2022 version is not yet available). Many reliable sources simplify the list, such as this one that lists 55 small business tax deductions.
The key thing to remember is that a business expense must be both ordinary and necessary to be deductible. An ordinary expense is a current expense in your trade or industry. Necessary expenses are useful and appropriate for your business. An expense does not have to be essential to be necessary. For a plumbing contractor, this suggests a lot of things, including:
● Office expenses
● Telephone and Internet
● Vehicles and vehicle maintenance (when 100% company owned and used only for business purposes)
● Mileage (for 2022, it’s 58.5¢ per mileas long as mileage is tracked in a log)
● Salaries and benefits for people working for you, including Federal Unemployment Taxes (FUTA), State Unemployment Taxes (SUTA), payroll processing, and employee payroll taxes, including Social Security , taxes on health insurance and taxes on unemployment.
The best way to fix it is to do it regularly. Some businesses track their expenses in a notebook or spreadsheet. An affordable financial management platform like Cared for, connects to the company’s bank account and credit card and can turn your receipts, invoices and bills into searchable digital documents, linking them to your bank details. These platforms also provide precisely the type of information your tax accountant will need to prepare and file your tax returns, which can save you time and money at tax time. Turnkey solutions exist that can help you manage your books and see exactly where the business is in real time, from your computer or on your mobile phone.
Look for a solution that automates essential accounting reports, such as P&Ls, cash flow statements, balance sheets, and expense reports. At the same time, the platform should provide instant insight into your cash balance, sales total, and top expenses. A complete financial management platform would also allow you to create and send personalized invoices from your computer or mobile device. Such a platform should also allow customers to make bank transfers or credit card payments with a single click. It would be just as easy to move data from whatever you currently use. Even better, it would be designed to be easily understood and easy to use for business owners who are not accounting experts.
You can do a lot without an accountant if you have the right financial management platform. You should always pay attention to these things (and use whatever software you get to help you do this):
● Watch your cash flow. If your bills are paid late or not at all, you lose opportunities to grow your business (and may even find yourself unable to pay your own bills, risking your future)
● Look where your money is coming from. By accepting credit card and digital payments, it becomes easy to monitor your business activity, and customers even prefer to pay this way. You can even explore online payment options such as bank transfers or credit/debit card payments.
● Watch regularly. When you know the financial health of your business, you will be able to act on financial problems and solve them before they become a crisis.
● Beware of the IRS. Remember to set aside money to pay your estimated taxes when they are due each quarter. And prepare for the eventuality IRS audit keeping your records carefully. (See tips above on a financial management system.) Mike Michalowiczauthor of profit firstrecommends opening a separate account just for your tax money and making periodic payments into it.
When you regularly monitor your business records, you’ll find that you’re able to breathe a sigh of relief and spend the time you’ve saved on the things that keep your plumbing business cash flowing. Take a home visit to your own books and choose the accounting solution that’s right for you.
Garrett Baird is President and CEO of The Neat Company (Neat). He joined the company in 2020 to lead its entry into the digital accounting space, helping small business owners spend more time growing their business while turning mundane accounting into actionable insight.