Search results (tags) for: "accounting"

Business Growth: Separate Your Personal and Business Finances

2009-12-17T11:10:00-05:00

This guest post is by Amanda Steinberg, founder of DailyWorth.com. DailyWorth is a daily email about money for women — delivering practical tips, empowering ideas and the occasional kick in the pants.

2010 is almost here. How can you improve your business operations? One simple yet incredibly important financial step you can take is to separate your personal and business bank accounts. No more comingling of accounts, no more gray area, no more personal checks for business expenses.

Back in 2006, around tax time, I remember it taking me three days' worth of effort to separate my Quicken report into personal and business expenses. Opening a second bank account is pretty easy and, even better, free. Okay, so you have to buy checks. But the time it will take you to separate data “after the fact” is ugly. Think of it as time that you could be using to sell or make your services or products.

Photo by WhimsyHouse

When Your Business is More than Just a Hobby

When you’re first starting out, it makes no sense to go overboard with new accounts or a dedicated credit card. It’s just a hobby, right? Wrong! Sales will start rolling in, and before you know it you'll have orders to fill and more raw materials to purchase. Suddenly, you need a website, an accountant, business cards and more supplies –- you even buy ad space on a few key websites. Do yourself a favor and open a bank account specifically for your business expenses.

Yelena McManaman, social media marketing specialist and founder of 1Click VA, knew it was time to make her move when she and her husband were buying an apartment. Her business was already generating steady income, but she hadn’t yet set up a separate business account – all her earnings went into the family account and expenses were charged to her personal credit card. So when the agent asked McManaman to verify her income, she couldn’t. There was no proof of cash flow. Whoops. “That’s when I realized that having a separate business account was not only good for my business, but essential for getting any type of financing deals in the future,” she says.

Clearly, at some point it pays to separate your personal finances from your business finances. But how do you know what to do and when to do it?

You know it’s time when…

You’re not sure how much money is going in or out. Budgeting is overwhelming. Costs are rising, and you're losing track of receivables (cash that's owed to you that you haven't collected). You know you “should” be earning more based on sales volume. In practice, you still can't make ends meet and you never seem to have enough cash in the bank. You wish you could run reports (expenses, income), but you can't access the data (because it's all mixed together).

Photo by mamaroots

A few ideas on what to do…

Set up a second checking account. Use your business name and Employer Identification Number (EIN) on the account — do NOT make it a second personal account. If you don’t have an EIN, you can apply for one online on the IRS website. Make it your business bank account. Get a separate credit card. Concerned about running up debt? Please, be concerned. If you’re sweating a second credit card, get a debit or prepaid card instead. But get a card to manage all expenses like website hosting and PayPal transactions. Remember: A credit card is free as long as you pay off the balance every month, and there are plenty of cards out there with no annual membership fees. Deposit all of your sales income into your business account. Technically, all profits are your earnings and you have to pay taxes on the profits. But that doesn't mean you should always take all of the profits from your business account. Put yourself on a fixed “draw” to make sure there’s operating money in the account and budget accordingly.

Set a goal to hire a bookkeeper with Quickbooks expertise. Or hire a bookkeeping service (cheaper than an employee in the beginning). Request monthly profit-and-loss statements. You need real data to understand which areas of your business are performing well – and which aren’t.

For Kate Lister, founder of Undress4Success.com and author of Undress For Success: The Naked Truth About Making Money at Home, the defining moment came when she was line-item audited by the IRS. Among the issues were credit card membership fees, if the card was used for both business and personal expenses. “In the end, they owed me money,” Lister says. “But it wasn’t enough to pay the $2,500 it cost me to defend my innocence.” Since then, she has started three successful businesses — and become religious about keeping separate accounts.

By separating your accounts, your personal financial choices (good or bad) can’t affect your business — and vice versa. You'll also find you have better control and far more sanity when it comes to your finances.

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Find More Tips for Running your Shop in Etsy's Seller Handbook.

The Art of Pricing: Three Helpful Pricing Exercises

2009-04-16T15:00:00-05:00

How do you know if you're pricing your handmade work correctly? There's a lot of info out there, including right here in our Art of Pricing series. The trick is to keep learning and evolving, not only in your craft, but in your pricing strategies, too. I've put together three exercises to bring focus to your bottom line. These exercises are here to make you think about your pricing, hopefully they can help you create a formula that works for you. I hope they help you as you continue to work on pinning a value to your items.

Exercise 1: What's It Worth to You?

Imagine if you will, a complete stranger asks you to create an item (something you currently sell in your shop). That's not all, they want you to photograph, list and promote this item as well. Whew! "Is that all?" you ask. No, they have one more request: package that item, print a shipping label and drop it off at the post office. Now imagine they want you to do all this for the price you currently have this item listed for in your Etsy shop. Would you do it happily? Would you grumble? Would you deny this task altogether? Reality check: It's up to you to determine the value of your time and efforts. Make sure you take a step back from your work and your prices and look at it from all angles.

Exercise 2: Get to Know Your Customer

Close your eyes and think about the ideal person you would like shopping in your Etsy shop. How old are they? How do they dress? How much disposable income do they have? Do they shop online? What type of handmade items do they love? Now that you have a clear image of this shopper, ask yourself, "How much would this person spend on a unique item?" How do the prices in your shop compare? If this is a hard exercise for you to imagine, get a clipboard and hit the streets! Find someone who pops out to you as your ideal customer and ask them a few questions. Yes, I am instructing you to talk to strangers. Feeling shy? Get your local Etsy Team together to survey as a group.

P.S. If you are brave enough to do this, leave a comment below and let us know what happens!

Exercise 3: Number Cruncher

1. Decide what you would love your yearly gross sales to be.
2. Figure out how many items you make per week, and how many for an entire year.
3. Divide your gross sales goal by the number of items you can create. (For example, perhaps you work on your shop part time and you'd like to sell $12,000 worth of goods. If you make five items a week, your yearly total will be 240 items. Dividing $12,000 by 240 items would give you a $50 price point.)

This equation will give you a suggestive price. Keep in mind this is just an exercise, some items may be more and some less, depending on time and materials. Also, you (most likely) won't sell every item you make, but with this average amount as an indicator, you'll know if you're on your way to your yearly goal!

Have another pricing tip? Share it with the community in the comments below!

Want another opinion on these tips? Check out MagicJelly's forum post here.

P.S. These exercises were originally publised in the Etsy Success Mailing List. Sign up here to get helpful tips delivered to your inbox twice a week!

Holiday How-To: Top Ten Financial Tips for the Holiday Rush

2008-10-01T11:00:00-05:00

The Holidays are a busy time of the year for most people — parties, shopping, traveling, baking, and various errands. If you are a seller on Etsy, you have one more responsibility to add to that list . . . managing the holiday rush that is associated with your business.

I hope the holiday season for your business will be stress-free, enjoyable, and successful. Here are some tips to help you manage your shop's finances successfully during the holiday rush.

10. Remember Tax Time is Near—The Holidays approaching also means that it is almost the end of the year (including the tax year). Now is a good time to know what your taxable income or loss for your business will be for the year. Maybe you can plan on buying some last minute equipment or incur necessary business expenses that will benefit what you owe to the tax man. If you plan on using an accountant to help you with your taxes, now would be a good time to start talking to them. Accountants get very busy after the first of the year.

9. Intelligent Short Term Debt—Too much debt can kill your business faster than you can pull out your credit card. Sometimes taking a little debt on can be a risk that has rewards. If you think you have a product that is absolutely going to be the bright spot in every shopper's eye, but you don't have enough cash to buy the materials—short term debt might be for you. If you are already in debt, I suggest you not go in any deeper, but promote what you have for sale even harder.   Talk with someone you trust if you are unsure if you should take on the additional debt.

8. Make Your Advertising Dollar Work Hard—This is the time of year to advertise intelligently.   Customers are ready with vast supplies of dollar bills to hand out to thousands of sellers. You need to give your shop an opportunity to stand out from the crowd. Look for promoting where you get the biggest bang for your advertising buck. Don't be afraid to ask for a "deal" when it comes to advertising on someone's website—the worst they can do is tell you is "no".

7. Inventory Management—Increased sales can put increased demand on your inventory. It might be beneficial to make sure that you have a ready supply of products to take the place of the items you sell. Also, make sure you have adequate supplies of raw materials on hand. Inventory problems can hamper your holiday success.

6. Avoid Cash Flow Nightmares—No one likes being short on cash, and it seems that during the holidays, this can be an easy predicament to be in. If you are going to have a lot of cash inflows and outflows in the coming months, you might benefit from looking when that money will come in and when it will go out. The biggest problem that comes from having a cash flow nightmare is the unwanted debt that it puts you in. Avoid confusing your business cash with your personal holiday spending money.

5. Everyone Loves a Sale—Tis the season for sales, promotions, and discounts. Many retailers offer customers incentives to buy from their store at this time of year—this method might benefit your shop as well. You don't have to sell yourself short though—make a profit and give your customers something to be happy with. A good transaction is when both the seller and the buyer feel like they came out well.

4. Cure Your Bookkeeping Headache—If you think your record keeping is out of control now, wait until the holiday rush is upon you. Don't hate yourself come tax time—devise a system of record keeping that works for you. You should be keeping track of your sales, expenses, and inventory at a bare minimum. If you don't feel comfortable with your method, you probably won't use it. Use paper and pencil, a spreadsheet, or keep it in your head if you are a mathematical genius.   Whatever you do—don't avoid it!

3. Budget Wisely—Don't go into the holiday season without a financial plan. Set some financial goals for your shop to achieve. Set some limits on your spending. Proceeding without a plan is like telling Santa you don't care what you get for Christmas—go ahead and make your list and check it twice!

2. Plan for Time Management—Time is a precious commodity and you probably don't want to just focus on your business during the holidays. Plan ahead and realize you can't do it all. Take some time to bake holiday cookies. Go for a walk in a winter wonderland. Snuggle up next to the fire and sing a carol. Your business is important, but there are plenty of things that are a lot more important.

1. Keep Your Sanity—No one can run a perfect business and anticipate everything that comes your way. Learn from your mistakes. If you make 1,000 sales in one day—great! If you make 1 sale in 3 months—great! The Holidays are an enjoyable time of year—don't let your success or lack of success determine the joy you experience during this time of the year.

I wish you a happy holiday season and may your business be blessed!

For more how-tos about selling, see the Seller Handbook.

About Us: Sinohe aka sinoheterrero

2008-07-23T12:27:00-05:00

Etsy's accountant Sinohe Terrero, aka sinoheterrero, balances our books and runs a tight ship over here at the Etsy offices in Brooklyn, NY. He's a CPA (Certified Public Accountant) and loves spreadsheets.

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This native of the Dominican Republic moved to the Bronx at the age of 7 and — besides his love of crunching numbers — loves the Red Sox, despite living around the corner from Yankee Stadium. For Sinohe, accounting and baseball stats go hand in hand. Sinohe also has two kids and proudly talks about his little ones.

He's a great member of the Etsy Admin Team and we're lucky to have him. You can see some of his previous posts on the Storque here.

Sinohe Fun Facts:

The name "Sinohe" was his aunt's idea. She saw a movie with an Egyptian doctor named Sinohe and loved it.
His full name is Sinohe Kenny Terrero and his twin brother is Kenny Sinohe Terrero.
Twins do not run in Sinohe's family. He and his brother are "special."
According to the Biz Ops Team, "He likes frappuccinos and other sweet and frilly drinks."
He and Etsy lawyer SarahSays have a running contest of who can eat more M&Ms.
When he was younger, he and his brother wanted to be big time music producers. Now he's an accountant and his brother is a lawyer.
When he got the job at Etsy, his twin took all his suits.

Did his twin get his fedoras too? Sinohe can't remember which one he is.

Darling Sinohe and Kenny, pumped about their new toys.

Etsy has had quite a growth spurt in the past year, and we have the awkward pictures to prove it. We are posting a series of About Us pieces to help you get to know the Etsy admin (and since many of us work remotely, for the admin to get to know each other!). You've seen the admin badge, and maybe you're a bit curious about the person behind it. For more on Etsy's mission and about the company, please see our About page (the link is in the little blue footer of every Etsy page).

Below you will find some of Sinohe's favorites.

Tax Time Considerations for the Independent

2008-01-29T18:43:00-05:00

It's tax time again — you know, that time of year when indie artists and crafters to weep and tear our hair out. But fear not! SarahSays, who is not an accountant but understands tax law a bit better than many of us, shares some tips below for US-based artists and makers of all things handmade.

While looking through the shops on Etsy, I often muse about the fuzzy boundary between professional and amateur, hobbyist and businessperson. Well, turns out that there are real tax ramifications for this. Read on...

Debits, credits, deductions, it’s enough to make your head spin! It seems that only a genius, the IRS, or a certified public accountant (CPA), can understand the federal tax and state tax muck-a-muck. Although many Etsians may choose to hire qualified tax professionals, some Etsians of seemingly average intellect manage all things taxable in a DIY fashion. Whether you go it alone, or whether you’d prefer to leave your tax matters to an expert, here are some tax time considerations regarding your Etsy business.

Keep accurate records. Save and organize documents, checks, and spreadsheets related to your business and any additional income (such as your Etsy income). Also, if you use an item, for example your cell phone or your computer for both personal and for business uses, then you should document the dates, times and reasons you use the items for your business. Although tedious, this can help you with deductions that reduce your taxable income and save you money. To qualify for a deduction, the expense must be ordinary and necessary (it must help your business in some minor way); related to your business (you must use the item for your business); and the deduction must be reasonable. But be careful, if the amount of deductions is large relative to your income, you may be audited. Common deductions for artists include advertising costs, attorney and accounting fees, banks fees, commissions and fees paid, insurance costs, license fees, office utilities, postage and subscriptions for professional or business publications.
Beware of the "hobby loss rule." The IRS wants to prevent taxpayers from taking advantage of the fact that business deductions reduce taxable income. For example, a teacher has been making jewelry for years and years and has never earned a profit from it. In this case, the IRS would decide that her jewelry making is a hobby, not a business. This year, the teacher spent $1,000 on jewelry supplies but only earned $100 total. She wanted to deduct the travel expenses from summer craft fairs and other receipts and expenses from her taxes. But these expenses would only be deducted from the $100 income. She can't deduct expenses from her teaching salary. The IRS recognizes the goal of her business is to make a profit, but she can only claim a loss for a few years at the most. The goal of a hobby is for personal satisfaction. If the IRS views what you do as a hobby, there will be severe limits on what expenses you can deduct. In general, if you earn a profit in any three of five consecutive years, the IRS will presume that your business is for profit. According to the IRS, a profit is when the gross income from an activity is higher than the deductions for it. Don't try year after year to claim expenses if you're not making a profit; you may want to recognize that you're a hobbyist (there's no shame in that!).
What to leave home (or recycle). Although, you can be audited for six years if you fail to report more than 25% of your gross income and can be audited without time limits if you file a fraudulent return, these are exceptions to the rule. In general, the IRS is prohibited from asking you about returns that are more than three years old.
It’s your tail on the line. The ultimate legal responsibility for your taxes lays with you, even if an accountant files your taxes. So, remember to be truthful and act in good faith!

Take your time, keep organized, and if you have any questions, speak to an expert. To find someone you trust, ask around. Ask a friend, co-worker, or other small business owner for a recommendation.

Please share any tax stories or tips in the comments below! Which are you — hobbyist or businessperson?