Accounting is often the most intimidating aspect of any business, but it does not have to be. The most important points to consider for accounting are bookkeeping, taxes, and financial reports. Decoration Busine
In order for a decoration business to maintain its books, the bookkeeper must keep all revenue and expense source documents and enter them into a Journal/Ledger. Revenue source documents take the form of receipts or invoices that the business has provided to its customers. Expense source documents are receipts and invoices that your business receives from its suppliers. Once you have your expenses and revenue organized, you can determine your net income / profit. The most important equation in accounting is Revenue - Expenses = Income (Profit). In other words, a business’s profit is determined by subtracting all expenses from total sales.
To track this, a business needs to import its revenue into a bookkeeping software program like Quickbooks. Many websites and Point Of Sale (POS) systems, like DecoNetwork, can integrate into bookkeeping software to automatically import sales. Bookkeeping software can also create invoices to be paid by your customers. The bookkeeper must then, on a daily (or, at the very least, weekly) basis input each and every expense. For each expense, the bookkeeper needs to record the date, amount, vendor (the business that the goods and/or services were purchased from), category, and a transaction ID number. This information is crucial due to the software’s ability to generate reports detailing information about the business’s spending habits. Bookkeeping software can generate a report that shows how much the business pays a certain vendor, or for a specific category of expenses, in a given period. This makes it important to be very specific when recording expenses. For instance, one category titled “production costs” is not specific enough. Production costs can include garments, ink, and even labor. Each of those costs should be recorded as its own category. Then, you will be able to determine your spending on ink or garments. Also, whether you need to adjust your spending, or negotiate prices with your vendors.
In addition to garment supplies and printing supplies, common expenses for decoration businesses can include office supplies (printer paper and pens), freight and delivery (shipping fees and packing tape), transaction fees (Paypal and credit cards), marketing expenses (Facebook and Google ads), software (Quickbooks and DecoNetwork), utilities (electricity and natural gas), office and decoration equipment (computers and screen printing machines), and employees. Quickbooks is the software we highly recommend, as it makes inputting the necessary information for each transaction easy and generates category-based reports (among many other types of reports).
The other reports available through bookkeeping software are important for a decoration business owner to understand. These include Profit and Loss Statements, Balance Sheets, Expenses by Vendor, Company Snapshots, Gross Revenue, and Net Income. A profit and loss statement, also known as an income statement, shows how much money the business spent and how much it earned to see how profitable the business is. A balance sheet lists a business’s assets, debts, and the amount invested in the business. An expenses by vendor report is exactly what is sounds like. This report lists total expenses for each recorded vendor. A company snapshot shows income and expenses year-over-year with charts and graphs to make comparison easy. Gross revenue is the full amount of sales made over a certain period. Net income is the amount of gross revenue minus expenses over a certain period. These reports will provide you with a solid understanding of the business’s financial status at a given time and in the context of past years.
A potential complication in determining current revenue is exactly when a decoration business is paid for its products. Often large clients, like schools and other businesses, will request Terms of Sale. Unless you have good reason to trust a client, like an extensive history of successful transactions, we recommend that you have clients pay up-front. However, for trusted clients, it is common in the decoration industry to offer thirty days to pay an invoice. This is referred to as “Net-30.” Or, you may even offer more favorable terms, like 10%- 20 Net 60. This would mean that the customer has sixty days to pay, but if the customer were to pay within the first twenty days then they will receive a 10% discount on their invoice. This gives the client an incentive to pay you as soon as possible. The business ultimately determines the terms of sale, but they can negotiate them with customers.
Once your decoration business has its finances organized, it is time to consider taxes. Federal taxes must be filed with the Internal Revenue Service (IRS), and state taxes are filed with the Secretary of State’s office. Local taxes can vary from community to community and state to state. For instance, Ohio is the only state that allows different municipalities to determine their own separate tax rates. In Ohio, local taxes are filed with the Regional Income Tax Agency (RITA). In most states, local taxes are filed through the local government responsible for the tax. Taxes are serious business, and the IRS is one of the most feared government entities. After all, notorious gangster Al Capone was not ultimately incarcerated for his many violent crimes, but for tax evasion.
Sales tax is not collected in every state (Alaska, Delaware, Montana, New Hampshire, and Oregon do not collect sales tax, as of spring 2016), and it can have different names based on which state you are operating in. However, if your state has a sales tax, then you are required to collect it from customers and pay it to the state. Wholesale goods are not taxed in any state except Hawaii, and it varies which states tax services. Businesses, schools, and some other organizations are tax-exempt, which means they can make purchases tax free. A business must fill out a “Sales Tax Exemption” form from their state for the vendor to keep on file. If there is one takeaway from this tax article, then it should be that state tax laws vary wildly across the country, and it is important to thoroughly research your state’s laws and comply with them to the best of your ability.
The rise of internet sales has complicated the taxation process. Businesses who sell products online are not responsible for collecting sales tax for sales made outside their state. That responsibility falls to the customer. However, many online retailers have locations in multiple states which can further complicate tax responsibilities. For instance, as of Spring 2016, Amazon.com charges sales tax on items shipped to 28 of the 50 states. When a business does not charge sales tax for online purchases the tax that the customer pays is called a “use tax.” Use tax is essentially a sales tax, but it is used to protect in-state businesses and state governments, since out-of-state businesses would otherwise be able to sell in your state while avoiding taxes.
Before we delve into operational expense deductions, one final concept to consider is depreciation. In essence, depreciation is the process of spreading out the deduction for the purchase of a business asset over multiple years. For instance, when a screen printing business purchases a new carousel machine the business can deduct part of the cost each year for up to seven years. This can also extend to major repairs, or improvements, to assets that extend their life. These repairs or improvements are depreciable separately from the assets themselves. In addition to repairs and machinery, buildings, furniture, and vehicles are also depreciable assets.
When it comes to actual business expenses, the first place to look is at your inventory. Not all inventory is deductible. Only the cost-of-goods-sold is deductible. Inventory on hand at the end of the year cannot be written off, but any costs associated with sold garments can be deducted. This is typically a decoration business’s largest expense, and it is reflected in IRS tax forms. The forms have two expense categories: “cost-of-goods-sold” and “other.” Cost-of-goods-sold is calculated by adding inventory left over from the previous year to inventory purchased during the year, and then subtracting the remaining inventory at the end of the year. For instance, if a business had $100 in inventory at the start of the year, purchased $5,000.00 worth of inventory throughout the year, and had $700.00 in inventory left at the end of the year, then the cost-of-goods-sold would be $4,400.00 (5,000+100= 5,100, 5,100-700= 4,400).
Inventory control is an important aspect of any business’s operations, but it is especially crucial for a product decoration business. When a product decoration business purchases inventory it is essentially an investment. Whether that investment pays off is based solely on the business’s ability to sell that inventory. This is why it is a good idea for product decorators to keep as little inventory on hand as possible. Most garment supply companies offer free shipping on larger orders, and most offer next-day delivery. Sanmar, for instance, offers free shipping on orders over $200.00. Also, if they receive your order by 4:00 PM, then it will ship that day. This access to garments allows decoration businesses the ability to print on-demand, and eliminates the risk of purchasing garments that may or may not sell.
It is crucial for decoration business owners to understand their business’s financial standing, and there is a lot to master when it comes to business accounting and bookkeeping. However, for a small business owner, the process can be simplified. By handling bookkeeping in-house and outsourcing accounting to the right firm, the owner can save his or herself time and money while still receiving the data necessary to run the business effectively and efficiently.
sses especially should keep their bookkeeping as simple as possible. The easiest method for a decoration business to handle its bookkeeping is to use a single entry system on cash basis. It is important, however, for the person responsible for the business accounting to do whatever bookkeeping possible in-house. Then, the books can be handed over to an accounting firm, who can organize the business’s finances and provide you with a complete picture of the business’s financial standing. Accountants are very expensive, and you do not want to waste their time and your money on the menial tasks associated with bookkeeping.
