Accounting For You
|Posted on 10 February, 2014 at 20:05||comments (7)|
With the handmade revolution growing all the time more and more people are making products to sell. With the wealth of talent out there handmade products are growing in popularity, anything from jewellery to art, cards to clothes, and candles to candies. While many people make their products just for themselves or as gifts for their friends and families, a growing number of hand makers are now selling their products. With the growth of such online market places as Etsy and Felt and the increasing number of physical designer and hand craft markets the opportunity to sell is increasing.
However, once someone starts selling their products on a regular basis, be it online, at a market, or even via a shop or gallery, they are no longer enjoying a hobby, they are conducting a business and this needs to be properly accounted for.
As someone who makes and sells jewellery under the name of Shazzabeth Creations this is something I have had to deal with. Fortunately of course I have the advantage of also being an accountant and so this hasn’t been a problem for me.
When accounting for a handmade business it is easy to overlook some of the costs that can be claimed against sales. While some may be obvious, others may be less so. There are two categories of costs, direct and indirect.
The most obvious direct costs are material costs, the raw materials that you actually use to make your products. For most people selling hand made products this may well be the only specific direct cost that there is. However, you need to ensure that you are accounting for the whole material cost, and that not only includes the actual cost of the material but could also include:
All of these add together to create the TOTAL material cost.
If your order contains several different items then the easiest way to handle this is to pro-rata the additional costs (freight etc.) against the items in your order in order to then give you a total cost for each individual item.
The other potential direct cost that hand makers could have is salaries. This would be if the business has grown enough that you are now paying one or more people to help you make your products.
Some of the indirect costs could be fairly obvious. There are some which more directly relate to the handmade business as a whole and it would generally be easy to recognise these. These would include:
There are however some other costs that may more easily be overlooked and which can quite legitimately be applied against the handmade business. These include (but are not necessarily limited to):
Assets– Tools and Display Equipment/Materials
The one area that you have to be careful with is the cost of tools and display materials. Whether these are tables or display racks for market stalls, or sewing machines, pliers etc. used for making your products, if the useful life for these items is expected to be more than one year then the items have to be capitalised and depreciated. You can’t claim back the total cost of these items in the year of purchase.
Of course the easiest way to ensure that you are accounting for your handmade business properly is to employ an accountant, specifically if possible an accountant who understands handmade businesses.
|Posted on 29 January, 2014 at 23:43||comments (4)|
If you are working from home and have a dedicated work space, such as an office, studio etc. then you are entitled to claim tax relief against a percentage of certain of your household costs. There are just two principle conditions:
So what percentage are you entitled to claim?
In order to work out the percentage you are entitled to claim you need to calculate the floor space (in square metres) of the dedicated work space you have as a percentage of the floor space for the house as a whole.
So for example, if your dedicated work space is 8.6 square metres and the whole of your house is 151.6 square metres, then your dedicated work space accounts for 6% of your total house.
(If you need help converting room measurements to square metres then here is a great tool -
The percentage of your work space against the whole house is then the percentage of the household costs that you are entitled to claim.
So exactly which household costs can you claim a percentage of?
The sort of costs that the tax office states you can claim a percentage of, based on floor area, are as follows:
So using the above example, you would be entitled to claim 6% of these costs.
Unlike the above mentioned costs telephone costs are not based on a percentage of floor area. If your home is the management centre for your business then you are entitled to claim 50% of the fixed line rental costs of your phone. You are then also entitled to claim all the toll calls that are business related.
Of course, if you have two phone lines, one for business and one for personal then you can claim 100% of the costs for the business line but none of the costs for the personal line.
For both of the above types of costs, if you are NOT registered for GST then you can claim your percentages based on the GROSS costs. However, if you are registered for GST then your percentage claim needs to be against the net costs. You can then claim back the relevant percentage of the GST cost through your GST Return.
Employees Working From Home
While the tax office specifically mentions small business owners working from home in relation to claiming home based costs, if you are an employee working from home you may also be entitled to claim home based costs as long as you are not receiving any sort of reimbursement or allowance from your employer in relation to these costs.
|Posted on 20 January, 2014 at 17:26||comments (22)|
We all know how important it is for businesses to have a budget but it can be just as important to have a budget to manage your personal finances.
So many people get into debt because they don’t manage their personal finances properly or become stuck when they get an unexpected large bill and have difficulty paying it. By having a personal budget it is easier to ensure that you are prepared for the unexpected and that you have money put aside ready for those large bills.
The primary goal for a personal budget is to minimise expenses and maximise savings. By cutting down on unnecessary spending and increasing your monthly savings you can put that extra saving toward long term financial goals. A budget also allows you to properly plan for and put money aside for periodic bills such as quarterly rates bills, or annual insurance bills.
For most people who are in paid employment it is easy to know what your monthly income is. However for those who are self-employed or who run their own business determining income may not be quite so straight forward. In this instance a best estimate should be used, if possible aligning it with the business budget.
There are certain expenditures which will be the same or very similar each month. These would include:
These are therefore relatively easy to budget for.
The second category of expenses are those which can vary much more, but by the same token are also those over which you have more control in terms of the amount you spend. Some are still necessary costs but others are not and can therefore be dropped if the budget does not allow for them. These types of costs include:
By first getting a realistic picture of how much is currently spent on each of these costs and by then taking control of this expenditure your budget will start to look much healthier.
Tip! Put money into a different bank account each month for those bills that are quarterly or annual so that you have the money put aside ready for when the bills come in.
Help with Budgeting
There are many different websites that provide free templates and guidance on creating personal budgets thus making it a relatively easy exercise to perform as long as you have the discipline required. A few samples of these websites are as follows:
|Posted on 12 January, 2014 at 16:23||comments (0)|
Once you have plans and goals for your business the next most logical thing to put in place is budgets. Budgets can be important tools which unfortunately too many businesses don’t make proper use of.
Too many businesses will take their “actual” sales and costs from the previous year and then use them as their “budgeted” sales and costs for the next year. While this may be a quick and easy way to put a budget together it means that the budget isn’t being used to its full extent – as a control tool.
Budgets can be used when helping to forecast sales, but more importantly they should be used to help control costs.
These are all questions that you should be asking when putting together a budget.
One example that I saw at a previous company was the buying of stationery. All stationery was purchased online and then delivered. The delivery cost was free if the order was over a certain amount. Originally the stationery was purchased as and when required and delivery costs were frequently paid. However, this was changed to a once a month order, with requirements being added to a list throughout the month. This immediately eradicated the delivery costs while at the same time making staff more careful with their stationery usage thus reducing the cost of stationery consumables too.
Zero Based Budgeting is a great way to set up a budget that is to be used as a proper control tool, particularly for new businesses or businesses that need to introduce better control of their costs. What zero based budgeting does, as the name implies, is that it starts with no costs in the budget at all. You then justify every cost that gets added to the budget:
By asking these questions and justifying every item of expenditure the budget is being used as a control tool making you aware of all your costs and the need for them.
Of course putting a budget together is just half of the exercise when it comes to properly using a budget as a control tool. The other half of the exercise is to compare and analyse the actual costs against the budgeted costs. This will be covered in more depth at a later time.
|Posted on 5 January, 2014 at 21:54||comments (1)|
When better to do an appraisal of your business and to set new goals than at the beginning of a new year. Now is the time to sit back and take an honest look at your business.
Is your business progressing and growing the way you would like it to go and if not why not?
By focusing on your business you can get a good idea of how the business is performing and this will enable you to set the focus of your strategy for moving forward.
Once you have reviewed your business use your review to redefine your business goals. Ask yourself the following
|Posted on 15 December, 2013 at 19:19||comments (1)|
|Posted on 9 December, 2013 at 18:45||comments (2)|
In today's busy world the one commodity that always seems to be in short supply is time. How often have tasks been delayed or put off because there just hasn't been enough time to do them? It doesn't matter if you are the managing director of a multi-national, a small business owner, an employee or a stay at home mum, time is something that is precious to everyone.
There are of course ways to better manage your time and "time management" is a key phrase that is commonly heard. Some of the major principles involved in time management are as follows:
Delegation is one of the most useful tools when it comes to saving time and is a tool that is frequently used both in the workplace and at home.
In the corporate world managers will often delegate tasks to their subordinates, something that is understood and readily accepted.
So how is delegation employed at home? Many householders will employ a cleaner to come in and do their housework once a week, or a lawn man to come and mow their lawns once a fortnight. It is not because the householders are unable to do the tasks themselves but rather because they want to save the time of doing those tasks themselves. Online grocery shopping is gradually now growing as a resource to save the time of going to the supermarket.
So how about small business owners and sole traders? This is frequently a category of person who struggles to find any spare time at all. They are busy running or developing their business during the working day and then find themselves spending every evening or weekend keeping on top of the paperwork. So how then can small business owners and sole traders delegate when there are 'no other staff'? Quite simply small businesses and sole traders can delegate by means of subcontracting certain parts of their work, specifically all the back office services needed to keep their business up and running.
When it comes to sub-contracting services some are more obvious than others. For example, no one would think twice about using a lawyer for help in dealing with legal matters to do with their business. However, when it comes to other types of back office services business owners will frequently struggle trying to find the time to deal with them on their own. There are however a wealth of professionals who can be delegated to for all sorts of other services, professionals who can save business owners time. These include:
Any one of these professionals can help to give back the gift of time allowing more time to be spent on those things, that at the end of the day, are most important to everyone, such as family and friends.