Prices continue to rise and it’s taking a toll on everyone. Everything has doubled (at least) in price and we still have to be ready to pay that tax bill soon on top of gas and groceries. It’s a bit overwhelming if you aren’t ready, so my question is, are you?
Preparation with Profit First
Profit First can be your saving grace during tax season. Instead of dreading that phone call from your tax preparer, you feel accomplished because you can write the check and know the money is already there. There’s no worrying or scrambling to get the money and cover the bill. So how can you get some of that control in your life? It’s not as hard as you might think!
Location, Location, Location
Your first step is to set up a bank account specifically for taxes. This will be a checking or savings account created specifically for federal and state income taxes. Property and sales taxes will come out of your normal OpEx account, so you don’t have to worry about those. When your Amazon settlements come in, take out the money you’ll need for taxes and move it into your designated tax account. Location matters, and if that money is separate from everything else, it’s easier to leave it alone and only touch it when it comes time to make your quarterly estimated payments or at year-end.
Now you need to know how much to set aside in your tax account. My recommendation is always to look at your previous year’s tax return and figure up the percentage of tax to revenue. This is a good baseline, but throughout the year you’ll want to test the number to ensure it’s still making sense for your business. Last year may have been extremely profitable for you, but this year isn’t hitting those same marks. If this year’s profits are growing much faster than last year’s, you’ll need to recalculate as well. Check-in with your CPA and see if a recalibration makes sense. September is normally a great time of year to have this talk.
Don’t Get Trapped
Getting stuck feeling like all your money is being dumped into inventory or advertising is super easy. Maybe you’re taking your owner draws without understanding how it’s affecting your bank account. As business owners, we are striving for growth and idle money appears to not be contributing anything to that goal. This is a trap, and you don’t want to fall for it.
You may only have to “settle up” with the IRS one time a year, but taxes are really a cost of doing business. Like you would any other cost, put money aside to cover it. If you just redisperse the money back into the business, that money is really just acting as a crutch that will be pulled out from under you on April 15th.
Reap the Rewards
Our clients that use Profit First and the bank account system never fail to tell us what a relief it is being able to pay taxes with money that’s readily available for it. One of their favorite stories to tell is the look on their accountants’ faces when they say, “Write the check for X amount? Sure thing!”
Using Profit First, you too can reduce the dread and stress that comes with tax season, and even plain everyday operations! Profit First is one of my favorite things to work on, and we would love to help you implement it into your business as well. Reach out the bookskeep team and start taking your Profit First today!
Interested in Profit First?
If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you!
You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional, I will teach you why Profit First works so well for ecommerce businesses and the particular challenges for businesses that have physical products requiring inventory management. You will learn how your behavior drives your money management habits for your business and how you can set up your business bank accounts to work with your habits.
Check out all our ecommerce accounting and profit advising services here!
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