Monday, January 05, 2009
Profit and Loss Statements can be so... um... interesting?
(image from www.myownbusiness.org)
My daughter went back to school this morning and I did a little happy dance thinking about all the free time I now have to be creative and write and maybe sew the curtains and definitely plunge head first into the Punk Anthology and... do the books! Not make a book. DO THE BOOKS. 2008 can not be put to bed without first being tucked in with an official Profit and Loss Statement.
And what is a Profit and Loss Statement? In a nutshell, a profit and loss statement is the end of the year report of your business that shows how much you've earned (profit) and how much you spent (lost). This is what you need to show the IRS when you file your taxes, as well as show your city for you business license, your bank when you need a loan, or anyone else who needs proof that you really do have a business and didn't just put up a pretty sign that says so.
Organizing your profit and loss statement can be daunting, which is why I keep stressing that you should keep track of your earnings and receipts all year long and not just at the end of the year. If you do a mini Profit and Loss statement for every quarter, the time you spend going through receipts and finding old invoices will be cut in half.
I wish I could say I did that (can't take my own advice, now can I?). Quarter one and two were perfectly managed and organized, but quarter three and four were not. As soon as I started school, my records from July to December 2008 were tossed in a file called "receipts" and ignored. Luckily I didn't spend much during that time so there weren't many receipts to tally (nor did I earn very much, so the invoices were low. Not sure that's good, though).
After two hours of organizing receipts and tallying up my costs and earnings, I had my statements for both Quarter 3 and 4. Then I could tackle the entire year.
My expenses are broken into several categories:
-miscellaneous (always have a misc section)
... just to name a few.
The IRS needs all these categories to provide you with the right deductions, plus it will help you organize your receipts better if you can link it to a specific area of your business. And breaking down expenses into different categories enables you to clearly see exactly where your money is going (I spent $22.00 on pens?)
There are numerous templates and tutorials on line to help you with your Profit and Loss statement, but I just created my own by using an Excel spreadsheet. Keep it simple, thorough and clear, and make sure you can back up your expenses with receipts. You can SAY you paid $1000 on printing, but if you get audited and don't have a receipt, you'll be in big trouble with the IRS.
I'm now waiting for one more form from my Wholesaler to verify how many books we sold in December before I can put 2008 to bed. Overall, Medusa's Muse lost money. A lot of money. Far more money than I should have spent. But I really wanted to go to LA and see BookExpo, so I went over budget. Oh well, sometimes the experience is worth the interest on the credit card. But 2009 is going to have to be a much leaner year to make up for this one. I have a feeling a lot of people will be doing the same thing.