Tag Archives: Expense

Tracking Business Expenses in Direct Sales

Not many people enjoy having to do the books. But, if set up properly, and with the right knowledge, they are not as cumbersome.

Expenses

Expenses in Direct Sales (Photo credit: Phillie Casablanca)

For anyone who runs a business, they know that one of the tasks that must be accomplished is the accounting. For some, this is a job which they hate as much as toilet cleaning, but it is one that has to be done. Even if you use an accountant do to the final year end papers, if you do a good job with the day to day books, their job will be easier. Here are some ideas to help with tracking the expenses so that it will not be as much of a hassle.

Tips

  • Have a separate bank account for your business expenses
  • Put as many of your expenses on credit cards as possible
  • Create a place where you put all your receipts for when you sit down to do the books
  • Depending on how much paper you have, put everything for each month in one envelope
  • Have a filing cabinet so that if you have a lot of paper you can organize things in categories

Know Your Expenses

If you categorize your expenses correctly, it will end up helping you in the long run when it comes to tax time. This list assumes that you are running a business outside of your home, as there are other deductions that you are entitled to with a home based business.

  • Advertising – business cards, web site marketing
  • Insurance – Business insurance – does not include health insurance premiums
  • Interest – Any interest you pay on accounts such as credit cards or loans
  • Legal and/or professional services – Accountant or lawyer fees that you pay
  • Office Expenses – Anything beyond supplies for your office
  • Rent or lease – Premises or equipment
  • Supplies – Paper, toner, notepads or anything else routine
  • Travel – Cost of travelling to conventions or meetings
  • Meals/Entertainment – Amount paid for meals or entertaining clients. This has a special tax ramification which is why it should be separate
  • Utilities – Gas, electricity, telephone, Internet
  • Dues – Subscriptions to magazines or trade groups your business is a member of
  • Other – Any items that you are not sure where they belong can be put here

Make sure you keep the receipts that go with all of these expenses, as you will need them to show your accountant and possibly the IRS. But if you can get your expenses itemized through the year, it will make it easier for your accountant and you will spend less money.

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How to Handle your Business Expenses

Accounting and paperwork are scary to a lot of business owners, but it is a part of life. By setting up a system, you will make your life a lot easier.

Receipt Please

Receipt Please (Photo credit: Peter π)

For most people, accounting is not a priority in their business, but when month end or tax time comes, they are scrambling to find all their documents and prepare things. But if you take a bit of time each week or month to track your expenses, you will be ahead of the game and you will not have to look all over the place to find your paperwork.

One Location – First things first, put all your receipts in one location. This way, even if you do not have time to deal with it right now, you will know where to find it.

Make Notes – Mark your receipt with any relevant notes such as you were mailing a parcel to Jane or you took Joan out for coffee to discuss why your business would be a great fit with hers. These receipts are easy to forget their purpose.

Legibility – Make sure that the receipt is legible. If it is not, you can ask the location to write you a written receipt. If it is on the glossy till paper, you may want to photocopy or scan it, as those tend to fade over time.

Keep Current – Try to work on your books every week or at a minimum, once a month if you do not have a lot of transactions. This will save you a lot of time and headaches down the road.

Filing – Have a filing system that makes sense and you can keep up with. Challenge yourself to see how fast you can find something; if you have to go through multiple folders then it is not the right system for you.

Credit Cards – A great way to keep track of your spending is to put everything onto a credit card or debit card where you get a statement listing the expense. You won’t forget about it this way. Do not use the same card for your business as you do for your personal spending, as this can be very confusing and cause issues at tax time, especially if you are audited.

Envelopes/Folders – Envelopes and folders are a great way to organize your paperwork. Put unrecorded receipts in one until you record it, and then move to the appropriate folder once it’s recorded. You may choose to organize these by month or by type of expense; whichever works better for you and makes more sense.

One of the best reasons for keeping your expenses current and tracked is that you can see at a glance how well your business is doing and where you may be spending too much money. This is very important for a small business owner.

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Tax Write-offs – Miscellaneous

Not only can we write off advertising and our vehicle in direct sales, there are a multitude of other items that can be written off.  Of course, the rules vary by where you live and the local rules, so make sure you are checking the relevant websites or your tax accountant to find out what you can write off.

Supplies – Chances are you already know that you can write off any supplies you purchase for your business.  This means catalogues, order forms and even product that you purchase for demonstration purposes.  If you do end up selling the demo products though, you have to report this as revenue.

Meals – If you meet a potential recruit for coffee or a meal, you can write this off.  Make sure you get a receipt and mark on it what the occasion was so you do not forget later.  In Canada, you cannot write off 100% of this expense, but every little bit helps.  If you are at a vendor event and purchase a meal, you may not be able to write this off, but again, it is best to ask.  Typically you can only write off a meal if you are away from your home area for a certain amount of time.

Samples – If you have purchased samples that you give away to customers, these are a write off.  These are items that you can typically only purchase through a supply order and that you cannot sell for cash.  You may put them in customer bags, give them away as prizes at events, or hand them out at trade shows.

Home Expenses – This is a category that can be complicated and difficult to determine if it is a valid expense and write off.  Typically, to get to write off a portion of your home, it has to be allocated specially to business use only.  For many people, this can be difficult as they do not have a lot of room that is not already in use somehow.  Your bills, such as your phone and Internet, are also tricky as you have to be able to prove what portion is used for your business.  For instance, you would need to prove that you use your Internet 25% of the time for business.  If you have a dedicated phone line, that is easy to prove, but it may be difficult to write off your regular home phone line.

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Keeping Track of Papers for Tax Time

Come tax time, if you cannot find the paperwork, then it is hard to claim it.  You can, but if you get audited, they are going to want to see the paper to back up your claim.  For this reason, it is a good idea to keep organized through the year so when the tax season sneaks up, you are ready for it.

Image by Getty Images via @daylife

Envelopes/Folders – You can organize your direct sales paperwork in a variety of ways. For me, I have found that having a large brown envelope is a great way to do it.  I have one envelope per month for sales and have it organized as such – party summary (from my company’s backoffice) and receipts relating to the party attached.  I also write the order number on the receipt just in case they get disconnected.  As I do not have a lot of expenses beyond what I purchase from my direct sales company, I have just one envelope for expenses.  I could easily itemize these out by month or by type.

Electronic Files – Just like my paper files, I have a folder on my computer for all my electronic invoices.  I have them sorted out by type of invoice (party, supplies, long distance, credit card) and sort them into those folders and make sure each file is labeled by date.  A few clicks and I am able to find anything that I need.

Excel Spreadsheet – I do all my accounting via Excel spreadsheet as I find it easier than using software.  But, software definitely has its advantages such as being able to prepare a report for you at yearend to use for your taxes.  That said, if you are not comfortable with either option, a spreadsheet with a list of various expenses is a good idea to prepare for your tax accountant.  I recommend a few columns though:  Item, Purpose, Date, Amount less tax, Tax.  This will help your accountant classify the expenses and record them in the correct spot.

One of the best things you can do for yourself is keep on top of your paperwork and have it sorted out.  This creates less stress later on and you will likely find it helpful throughout the year.

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Tax Season in Direct Sales – Everyone’s Favourite!

Did you sense the sarcasm in that title?  Personally, I do not mind doing taxes, but I have done my own ever since I started working and I also work in accounting so they are not the scariest thing to me.  But for many people, they are not comfortable with doing accounting or taxes for their direct sales business.  Hopefully this guide will give you some ideas to take the scare factor away.

Tax

Tax (Photo credit: 401K)

Revenues – You need to claim the funds that you made from your business.  This is the proceeds that you made on your sales.  For instance, if you made $100 on a sale but your cost was $75, then you need to claim that $25.  If you had a team, then you may have made commissions on them which will also need to be claimed.  Your company will issue you a tax receipt when the money they have paid to you is over $600, regardless of the mix between revenue from parties or team commissions.

Deductions – There are lots of deductions that you can take with a home based business.  Various expenses to keep your house running, costs associated with your mortgage, expenses associated with your vehicle and of course, those that are encountered in the course of your business. For many people, these deductions make the difference between owing money and paying in.  It is always best to consult your tax agency or tax accountant to find out what is and is not deductible and what you qualify for.  The deductions that I get may not be the same as the people on my direct sales team.

Expenses – Not only do you get deductions from your home and your car, you have legitimate business expenses.  Did you purchase postage to mail out catalogues?  How about paid for advertising in the form of business cards or a car decal?  Did you give away any product for raffles, hostess gifts or just to allow people to try the product?  All of these are valid expenses and ones that you need to keep track of for tax time.

 

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Keeping Track of your Accounting Paperwork

Replacement filing cabinet

Image via Wikipedia

Unfortunately, any type of business generates paper and you have to organize it in some way that you can find it again if needed.  You may need to find it due to warranty issues, to see what a customer ordered last, or heaven forbid, you get audited and you have to show the paperwork to the auditors.   Here are some suggestions on how to organize it all.  If this doesn’t sound like a good system to you, use it to figure out your own method – we don’t all work the same!

For me, as I do not put through a lot of parties and orders each month, I find an envelope system works well.  I picked up a box of about 200 9 ½ by 12 envelopes at Costco for about 10 bucks and I have barely used any.

Sales:

I take all the sales slips from each party and staple them together.  I mark the top one with the order number and the date I submitted the order to my company and put them in a folder labeled for the appropriate month.  In an effort to save paper, I save the order from my company in a PDF format to my computer with the order number.  You could easily print the page down and staple it to the front.

Expenses:

I have another folder for expenses throughout the year.  Again, I keep PDF copies on the computer for as many items as I can (for instance, utility bills as I get them all electronically).  For receipts for other things, such as trade shows or supplies bought at the store, I keep them in an envelope labeled “Expenses”.  I make sure to photocopy all the ones that are on thermal paper as they tend to fade which will not help you in the future.

If the expense envelope gets too full, or if you have a lot of expenses through the year, you could easily sub-divide it.  Select the divisions that make the most sense to you.

Banking:

Another folder you should create is for banking.  I would recommend taking your bank statement and attaching any receipts behind it that are not already accounted for in your sales or expense folders.   You may not have anything left but bank charges and interest.  Make sure to account for those in your bookkeeping and put these in their own envelope.  If you use a credit card, it should be in an envelope separate from your bank account simply due to the amount of paper generated.

Whichever folders or envelopes you create, start new ones on January 1.

 

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