Nothing is certain, except death and taxes.
Many entrepreneurs think of the months following the holidays as the least wonderful time of the year. No one blames you. No matter where you are in the world or how long you’ve been in business, managing costs, tax deductions and what you owe is confusing and often expensive.
Today we’re going to talk about the necessary evils in every creative entrepreneurs’ lives: taxes, bills and loans. Oh my indeed.
Tax related things to consider to keep money in your business
Are you writing off your home expenses?
Whether or not you have a brick and mortar shop or studio, over the past few years you’ve definitely been forced to work from home. A lot. In most Western countries you can write off a certain % (based on square footage used) of your rent or mortgage. But that’s not all! You can also deduct some of your wifi, phone, electrical, water and anything you’ve purchased to make your home office function. Were you using a car for deliveries? Note that mileage! Note it all.
Are you incorporated?
This little Canadian remains gobsmacked when businesses are better taken care of than people, but that’s the current system. One place where this can be helpful, though, is more money in the pockets of small business owners. Registering or incorporating your business doesn’t always make sense if you’re a solopreneur just getting started, but if you're profitable and growing, it can be very helpful and cost effective. Do the math on your government’s websites, check and possibly save!
Some fast tax facts:
+If your business is a qualifying Canadian-held corporation, your tax rate goes from 15% to 10.5%
+In the USA, registered businesses benefit from insurance premium deductions, income splitting and deferred tax payments
+If you are a registered small business in the UK you can deduct many more day-to-day expenses than if you aren’t, and the government is currently offering rate relief for many because of the pandemic
Are you putting your money where your heart is?
One of the few rewarding tax deductions is writing off charitable donations. This isn’t just for small businesses, but also for individuals. Different countries offer different return amounts, but the bottom line is this: giving a few hundred dollars or GBP per year pays. You see a return on your community investment, and it feels pretty good.
When considering causes near and dear to your heart, turn your attention to local charities. They often don’t get the large corporate donations that nationwide nonprofits do, and they might even become local advocates for your small business. Keep that word of mouth goodness close to home.
Are you bookkeeping?
Earlier in the article we shouted note it all. It’s much easier to start noting everything now, in January. Create this habit for 2022! Make a sheet on your computer, make a folder for receipts (digital and paper) and vow to keep on top of it. Make weekly or monthly calendar reminders for yourself. Like it or not, bookkeeping is a fundamental part of being a solopreneur.
Bummed that you didn’t do it for 2021, especially since there is so much that you can deduct in this Covid-19 climate? It’s not too late! Almost every transaction you made this year was made by card. Sit back, turn on some tunes, and go through your statements with a fine-toothed comb. Note anything that could be considered a business expense.
Accountants cost money. But if you haven’t been great at your small business taxes and deductions in the past, a one-time payment to a good accountant who can walk you through it all is an excellent investment. They’ll teach you what you need to know, and next year you can take it on yourself (if you dare).
Choose a small business to help you this tax season. Little businesses care more (something you know well). Support a financial entrepreneur, and you both win. They’re much more likely to go the extra mile and teach you what you need to know instead of just uploading your receipts and sending you the bill.
Pay bills (and then maybe we can chill)
2022 is just getting started, so it’s a perfect time to evaluate everything you’re paying for. For most, financial growth is a priority this year. A good way to have more money is to spend less. When is the last time you audited what you pay for against what else is out there? First, see if you’re paying for things you don’t use enough to justify. Social media schedulers, premium music stations for the shop, etc. There’s usually a couple of things you can cut.
Now onto the big stuff. SaaS, POS and, well, everything costs money. But competition for small business technology is at an all-time high, so there's never been a better time to comparison shop.
It’s really important to evaluate anything that takes a percentage (not a fee, a scaling percentage) from you and all of your sales. For your payment services, a small percentage is standard, but it shouldn’t be for anything else.
Your SaaS is not your agent, they don’t do more when you make more money. Why should they get an ever-growing cut as you become more successful? Scaling percentages masquerade as fair at many start-ups, claiming to help people grow their dreams. For example, one large platform that’s used by many creators and entrepreneurs takes 12% of your income on top of the payment fee charges to use all of their tools. 12. Percent. And they know, chances are as you grow, you’ll need all the tools. I’m going to highroad it and not name names, but eff that. That ain’t right.
Low, flat rates are the means to an equitable small business end. Do yourself a favor, and make the switch to products that only take fair, flat fees now. Like Subkit.
There is no shame in small business loans
It takes money to make money, and the last few years have not been kind to entrepreneurs. It’s commonplace to consider a small business loan.
Surprisingly, most lenders don’t care if your idea is great. The world doesn’t work like Shark Tank. The number one thing banks and funding startups are looking for is future growth trends:
+Are you growing month over month?
+Are you reliably earning enough to pay back the loan?
A crystal clear way to prove future income is through a subscription or membership model. The passive income from subscription is a surefire way to prove your value over time to anyone who needs to see it. You literally have proof of a minimum amount of money you will be making month after month, which is extremely desirable to banks and lenders. In many instances, proof of future income can even override poor credit.
Look out for number one
Inflation is real, reevaluate your costs and prices annually.
If business stayed exactly the same, would you be making more this year or less? If you look closely, it’s probably less. The cost of everything slowly creeps up, and you need to adjust for it. Your core customers care about you and will understand that you have to mind your margins and pay yourself properly.
When you think about your small business budgets and finances, remember to consider your personal salary. Your salary going up shouldn’t be solely based on rapid growth, and you must account for inflation. Take care of yourself financially wherever possible, your overall health will thank you for it.