Beyond Tax Compliance: Using Tools You Already Have to Analyze Your Business
“Ready or not, here I come!”
The bellow of your big brother’s voice reverberates as you sit crouched behind the lofty trash can parked on the side of your house. Holding your breath, you discern his impending footsteps.
“Gotcha!!!” your brother laughs as he drags your cover away. Extending his hand to ruffle the top of your head, he tags you and takes off.
Sighing in defeat, you get up. One of these days you’ll win a round of Hide and Seek.
Reporting for the IRS
While owning your own business does allow you many freedoms, even you can’t escape Uncle Sam. Tax time rolls around now matter how much we hold our breath.
As you are probably well aware, the IRS expects you to report all of your income (so you pay them taxes).
Fortunately, you can use these reports to help run your business, at least making your time spent preparing them useful for finding out more than just how much you aren’t getting to keep.
If you claim deductions, it is important that you categorize them correctly.
Fortunately, structuring your reports for tax compliance is pretty straight forward- you can just use the IRS tax categories.
While it is definitely in your best interest to claim expenses, the treasury doesn’t care if you do, as it just means less money for them. (For the record, I recommend you do take advantage of deductions!)
Reporting for Business Analytics
Now that you have paid your dues to the government, how can these reports be of benefit to you?
You can (and should!) use them to run your business!
Once you have classified your expenses, try expanding upon these categories. Creating more detailed reports will provide a great analytical tool for demonstrating what is (and maybe isn’t) helpful to your business!
For example, if you spend most of your operating expenses in “Software” consider splitting this category into “Marketing Software” and “Operations Software.”
If “Contractors” tops the list of costs to run your business, it might be time to divide this group into “Internal Contractors” and “Contractors for Client Deliverables.”
Now that you have an idea about how to get a deeper look at where your expenses truly lie, let's discuss how to better describe your income.
In order to make your business more profitable, you need income categories.
Before selecting which income categories fit your business, consider the different sectors of your business or the programs you offer.
Do you offer courses, group programs or one-on-one coaching?
Are you an OSP? If so, the packages you offer might delineate your income categories.
Perhaps you want to simplify your categories by easily grouping them into “Monthly Recurring”, “Package-based”, and “VIP Day.”
Each month, correlate all of your sales/invoices with the applicable income category. This will provide a genuine view of what is generating your income (profits)!
Want cleaner reports? Take it a step further by utilizing sub categories in your accounting software.
The Bottom Line
Despite his peskiness, you probably learned a lot from your big brother.
While paying income taxes can be irksome, those annoying reports can also come in handy for running your business. With just a little additional effort, they’ll enable you to further analyze your business. Income categories especially will provide priceless data for making your business more profitable.
When creating your financial reports, be sure to structure them not JUST for tax compliance, but also so that you can see trends and make informed decisions, thus building a profitable business!
Remember, even though you can’t hide from paying taxes, including those deductions in your reporting means you can be a little less apprehensive about getting tagged by Uncle Sam. Be sure to check out my latest email with more details on income categories!
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