You don’t have to be an accountant or a business major in college to effectively manage your small business. In my opinion, the one thing that keeps the majority of internet sellers from graduating from a small-time operation into a real business is the failure to understand where they are making money and where they are losing profits.
On the surface this sounds like it would be common sense, but often, the sources of the issues are not as evident as you would think. Anybody can look at their checking accounts and see how much money eBay or Amazon is depositing into them. But is that the bottom line profits of your business? Of course not.
I highly recommend keeping track of your profits and expenses on a spreadsheet, so that you can get a picture of your overall money flow.
There are many different spreadsheets online that you can tailor to your selling situation. Find one that you like and start using it from the outset of your selling or scrapping career. You will be very glad that you did.
Keeping your spreadsheet helps you in a number of different ways. First, you can see which segments of your selling are making you the most money. Second, you can find areas where you can save yourself money in over-expenditure on packaging supplies, storage fees, gas money, etc.
To illustrate the second point, I remember reviewing our numbers after one season of garage sailing. We thought that we were doing really well, because we were making good profits on a very high percentage of the items that we bought. However, after crunching numbers, we were not as happy. We were losing a lot of our profits in gas costs and meals while driving from sale to sale. Also, a lot of the items were we selling were large, bulky items, and were costing us more money for packaging supplies. We also realized that we were spending a lot of time and money driving to the post office with packages.
These discoveries that we made directly led to us changing where we bought inventory, how we kept track of travel expenses, and investing in using an internet postage and pick-up service.
Keeping track of your expenses also prepares you for completing your income taxes. Not only are you required to claim your income from internet sales on your income tax returns, your internet sales business can actually help you with your tax burden, or increase your refund.
This is especially true in the first year of your business, as you are allowed to claim start-up expenses for expenditures, such as computers, smart phones, Wi-Fi and high speed internet installation, storage units, shelving, desks and furniture, and other odds and ends that you need to start your business. Just ensure that you are using the items that you are going to claim as business expenses only for your business. If you use any of the items for personal use in any manner, you will need to adjust for this personal use. Failure to do so, could lead to large fines if you are audited.
Keeping you receipts organized is also very important. Not only does that allow you to see where you are spending your money, it is also necessary to be able to verify spending to claim them on your income tax returns. You can claim meals and other expenses while you are conducting your business (finding inventory), overhead costs (packaging tape, computer paper, etc.), and advertising expenses, but only if you have receipts to verify your claims.
Another very nice tax deduction you can claim is for your home office. If you have a portion of your home or other building that is used EXCLUSIVELY for the execution of your business, you can claim that portion of your home’s utilities, repairs, and property taxes on your income taxes. That can be a huge break. You can also claim the cost of the degradation to your office space and the furniture and appliances that you use in your business. All of the forms needed to claim these items are found on tax preparation applications, such as TurboTax. You may have to do some research, or ask you tax professional, but the time will be well spent.
Just make sure that you understand that if you claim a home business deduction, you will be more likely to be audited at some point. Ensure that you have reviewed the applicable IRS rules, and have receipts and paperwork to verify your deductions.