Financial Organization, Here We Come!

Did you know that you can get an automatic six-month extension on filing your taxes just by filling out a short form? You don’t even have to give a reason, you can just take six more months to do it. You still have to pay your taxes by April 15th of course (Uncle Sam doesn’t like waiting for his money), but since you pay quarterly anyway, that’s no big deal, and — 

Wait, you didn’t know that you have to pay quarterly estimated taxes as a small business?

Yes, federal and state income tax. Not sales tax, though. You can still pay that annually, but — 

Yes, you have to pay sales tax! You collected it from your customers, didn’t you?

You didn’t know you had to?

And you thought you got to keep it?!

You’ve just overheard me on the phone with my 2004 self. When I started my first business ten years ago, I didn’t know any of these things. I didn’t pay quarterly taxes my first two years. I didn’t know I always had to pay sales tax — even when I didn’t collect it. When Etsy or my online shopping cart collected it for me, I thought I just got to keep it. Luckily I was able to correct these things before they came back to bite me, but I can do you one better.

At the Craftcation Conference next week, I will be launching a small selection of financial organization services to get you on the right track. If you’re at the start of a new business and you want to make sure you’re doing everything correctly, but you still have a lot of “unknown unknowns,” I can help you get organized.  I’m not a CPA or a tax preparer — I won’t be doing your bookkeeping or taxes for you. What I will do is set up a customized financial system for your business and teach you how to use it. Not only will all your i’s be dotted and your t’s crossed, you’ll be able to see the health of your business at a glance, as well as what you need to do to make it more profitable — all for the cost of preparing one tax return. Here are the goods:

  • Squeaky Clean Books ($500 for service-based businesses/ $650 and up for product-based businesses): get a one-of-a-kind, customized Excel bookkeeping ledger that contains exactly the features your business needs and nothing extraneous, plus three hours of private tutoring in proper bookkeeping techniques, using your ledger and your receipts. The ledger is sweet — it does all the calculations for you automatically. Come tax time, all you’ll have to do is print the front page! (does not come with Excel software)
  • My First Quickbooks ($650 for service-based businesses/ $800 and up for product-based businesses): get your Quickbooks software (Pro or Premier Manufacturing & Wholesale edition) set up specifically for your business, plus five hours of private tutoring in proper bookkeeping techniques and how to use the software. (does not come with Quickbooks software)
  • Price Hacker ($300 and up): I will help you set sustainable, market-appropriate prices that you can feel confident about for all of your products and/or services.
  • Wealth Builder ($450): get a personalized financial plan for saving, investing and/or paying down debt, based on your life goals, plus three hours of private tutoring on how to build wealth confidently and painlessly.
  • Sales Tax Master ($200 and up): I will walk you through filling out and filing your California Sales Tax return, and help you set up your records so that it’s a breeze next year.

If you’re looking for something a little different, you can contact me to customize a package just for you. I am also available to consult on specific topics on an hourly basis. If you will be attending the Craftcation Conference in Ventura, you can take my personal finance and/or bookkeeping workshops to get a sense of how I structure things. I’ll also be speaking on a panel about pricing and offering personal office hours for your financial questions. Let’s get in touch!

 

Dear Diary, Today I Went to Starbucks

If you are self-employed and either eat out or drive on the job, chances are you’ll want to deduct what you spend on those things. But meals and car expenses are two of the most likely things on your tax return to get scrutinized by the IRS, and who wants to organize hundreds of receipts for small dollar amounts? An easy alternative is to keep a spending diary — or two or three. A spending diary eliminates the need for you to keep tons of receipts for tiny amounts and is also one of the only spending records the IRS will accept as legitimate.

I have two spending diaries: a small notebook that I keep in my purse for meals/entertainment/public transportation, etc., and a pad taped to the dashboard of my car for mileage and car expenses. I recommend a separate diary for your car because it will be organized slightly differently than a regular diary. Some people like to use a digital or cassette recorder in lieu of paper (Blackberry/iPhone users, I’m looking at you) but either method is fine as long as it contains the proper information.

Like all documentation prepared for the IRS, a spending diary must follow a series of somewhat complicated rules in order to be admissible. Here’s how to set up an iron-clad meals and entertainment diary, for example:

  • Include only entertainment and meals you ate out (not groceries!) that totaled $75 or less. You will need to keep a receipt for any meal or entertainment expense over $75 (no matter how many people you paid for).
  • Create the following set of columns for your diary:
    • The date
    • The amount you spent
    • Where you spent it (establishment and city)
    • The names and business relationships of anyone you entertained
    • The business you were doing or discussing
  • Fill out the information the day you spend the money

For your car diary, just follow the format from this IRS example:

mileage log

Source: http://www.irs.gov/publications/p463/11081l08.html

Tip: record the entries from your diaries into a spreadsheet every week when you do the rest of your bookkeeping. This will help you to budget future spending and will save you time when you need to prepare your taxes.

Steady at the Wheel: Car Deductions

One of the areas of your tax return at which the IRS looks most closely is the section covering car deductions. There’s a reason for this: it’s a difficult set of tax laws to navigate and many people over-deduct or use sloppy estimates, resulting in more money for the government when they catch you. You don’t need receipts for everything, since it’s difficult to get receipts for things like mileage, but you do need detailed records of everything.

Car deductions are easy if you have a company car. In this case, you can just deduct the whole shebang. What’s more complicated is if you use your personal vehicle for business purposes. If you fall into this latter category and need to itemize your deductions, here are the basic steps:

  1. Keep a mileage diary in your car at all times. Write down the date, the starting and ending mileage, tolls, and one of the following purposes for any business-related trip you make:
    • Overnight travel away from home
    • Shopping for your business (not shopping for yourself, even if you use the purchase at your business, like a suit)
    • Travel to a professional development event such as a seminar or conference
    • Sales calls
    • Deliveries
    • Travel for marketing or promotional purposes
    • Travel to a job site or meeting as an independent contractor — NOTE** if the job site you are traveling to has you on the books as an employee rather than as an independent contractor, you are now technically commuting, which is not deductible.
    • Travel between job sites
    • Any other qualifying travel during your business day.
  2. Keep all receipts and statements for tolls, maintenance and repairs, gas, auto registration, inspections, etc.
  3. At the end of the year, total up your business mileage and divide it by your total mileage for the year. This will give you the percentage of your car that was used for business. Also, look up the amount by which the value of your car has depreciated (must be $2,660 or less if your car was bought new that year or was worth more than $12,800 at the beginning of the year).
  4. Total up your car-related receipts and depreciation for the year and multiply the total by the percentage you just came up with.
  5. Multiply just your business mileage by $0.31. This is the standard automobile deduction, calculated by mile.
  6. Compare the results of steps four and five. You will use the higher of these two numbers to get your deduction.
  7. If you are 100% self-employed, stop here. Your costs are fully deductible.
  8. If you are on the books at anyone else’s business as even a temporary and/or part-time employee, your car costs are subject to the “2% floor.” In this case, total up your Adjusted Income for the year (income minus expenses) and multiply it by .02. Subtract that amount from the business-related car expenses you came up with in step 6. This is the total amount you may deduct. If you come up with a negative number, you may not claim a deduction.

See? It’s complicated. I didn’t even mention things like specific deductions for hybrid vehicles or certain trucks, driving for charitable purposes and deductions for interest on leased vehicles. For all the nitty gritty stuff, start with this page directly from the IRS.

Rip-offs and Licensing

Tonight I attended an intimate little gathering at the Stitch Lounge in San Francisco to promote the new Sublime Stitching book by Jenny Hart. If you’re a member of the craft community, you probably recognize items from her hip embroidery empire. I recently bought some Sublime Stitching materials for my sister’s birthday (that she loved) so I was excited to meet Ms. Hart. She was very generous, friendly and forthcoming.

Everyone who was at the table tonight owns and runs their own creative business. Unsurprisingly, talk soon turned to rip-offs. A lot of good points were made, and I’d like to share a few with you:

  1. Some people steal without remorse. Many big companies send scouts to small events like local craft fairs, looking for ideas to steal. Many of them have no qualms about ripping off small designers or artists, because the artists either a) never find out, b) don’t have the courage and/or resources to pursue legal action c) require such a small settlement that it is still financially worth it to be shady. The only way to stop this, is for every ripped-off artist to sue. If you’ve been ripped off by a bigger company, I’ll bet it wouldn’t be too hard to find other people who have been similarly robbed through web sites like Etsy or Craftster. Then everyone can pool their resources and file a much more dangerous class-action suit.
  2. Just because you bought it does not mean you own it. This is often confusing for people. It certainly was for me. If you buy a font, for example, you are buying a license to use it, including on things you might sell. You can use it to create printed note cards, for example, and selling those note cards is well within the terms of that font license. But different licenses use different terms. It is usually not okay, for example, to buy a knitting pattern for a scarf and then sell the scarf you made from it. Similarly, it is usually not okay to buy an embroidery pattern and then release a line of dishtowels you made using those patterns, even if you made them all by hand, designed the colors and placement of the images yourself, etc.
  3. It’s easy to borrow legally. Many designers, including Sublime Stitching, will let you license their designs. Though fees vary, a standard licensing agreement usually involves paying the artist about 5% of the gross sales of any product on which you used their design. So if those dishtowels sell for $10 apiece, every time you sell one, you would pay 50 cents to the designer of the embroidery patterns you used. That said, a licensing agreement is just that — a signed agreement between the licensor (the artist) and the licensee (you with the dishtowel line) that often includes certain conditions of use. Maybe the designer only intended for them to go on baby products, not dishtowels. Maybe your dishtowels are made using toxically produced fabric, or are just plain ugly. In any case, it is the artist who gets to decide whether or not and how their designs are used.

I think that’s enough for today. More on intellectual property in posts to come.

Why I Decided to Start a Full-Time Business

I’m not an expert on starting a business. I’m exactly the opposite. You will therefore not read the words “you should” very often on this blog. If you’re looking for advice about whether to take the plunge and start your own business, look elsewhere.

I started my own business for a number of reasons:

  1. By Accident or, The History of Sweet Meats: Sweet Meats began as a personal art project. In 2004 I saw a series of Deerhoof videos that show stop-motion animations of the artist Jenny Lew crafting odd plush creations. She made things like a felt videotape with a perfectly snug “cardboard” sleeve. It looked like a lot of fun.I decided I was going to make a ham, a mountain and a pack of cigarettes. I have no idea why I chose those three objects. I only made the ham and the cigarettes and I never finished all of the detailing. Nevertheless, people loved that damned ham. Everyone who came to our house commented on it. One day Andy suggested I make other meats and sell them online. So I did.I never promoted the site to anyone, but eventually, people found it. In July of 2006 so many people found it, in fact, that I turned my poor parents’ farmhouse into a sweatshop for three weeks (I still feel bad about it). Then stores began inquiring about wholesaling and other plush crafters wanted to know where I had them manufactured, so I thought it might be time to take the venture up a notch.

    BUT. I was under contract for another year of teaching Computers and Media Literacy at the K-8 school where I was employed and kind of liked my job, so I ran Sweet Meats as a legitimate side business and tried not to get more orders than I could handle. In 2007, Sweet Meats were set to be featured on CANAL+’s morning show, “La Matinale,” and in an article by Josh Friedland (that never ran in the end) for T: The New York Times Style Magazine. So I saved my money, resigned in April, and started building the business this August.

  2. I don’t have to worry about starving: I’ve got a good savings cushion, a partner who is willing to support the both of us during my first year in business (reciprocity for supporting us while he was in grad school) and family members who are happy to invest or supply interest-free loans simply because they love and trust me. If I didn’t have all three of these safety nets I would have been a bit more hesitant about dropping a full-time salary and benefits for absolutely no income.
  3. I’m terribly insubordinate: This does NOT mean that I don’t work well with people. On the contrary, I work extremely well with others and really enjoy collaboration. It also doesn’t mean that I am bad at following instructions. I know when I am in unfamiliar territory and welcome advice and steps to follow in that case. I am also good at receiving suggestions and honest criticisms when they are indeed honest and optional and not thinly veiled orders. I am very bad at taking orders. Unsolicited, compulsory directions in an area in which I already feel competent leave a bad taste in my mouth. I find them disrespectful and often ignore them. In short, I really need to be my own boss.
  4. I really wanted flexibility: In everything from when I travel to being able to run errands during banking hours. I also tend to have intense “task cravings.” Several times a day I have an overwhelming desire to do a specific type of activity, like organizing and cleaning, collecting materials, writing, researching or bookkeeping. The flexibility to follow my cravings allows me to be motivated and productive in some area almost all day.
  5. Confidence and optimism: This may all come back to bite me in the ass someday, but I honestly believe my long list of brilliant ideas will bring me acclaim and financial stability.
  6. I couldn’t decide what to be when I grow up: I considered architecture and landscape architecture, industrial, graphic and web design, engineering, teaching and a host of other things that could combine my creative/artsy side with my logical/science-y side. I took classes in ALL of these areas and always eventually decided that I didn’t love the field enough to spend all of my time in it. I couldn’t even choose a major in college. I had to make one up that was half music and art and half computer science. All I really ever wanted was the freedom to pursue the multiple projects I always have going on and to have this somehow magically produce money for me to live on. Starting this business is best way I can think of to sort of make this happen.

That’s the long and short of it. So far I love being in business. I haven’t made more than a few hundred dollars since August but I’m constantly learning new things. Each new day is completely different and full of firsts. It’s really fun, exciting and gratifying to see things move forward into the “real world.”

Hello My Name Is

Welcome to the Biz Miss Blog. This is the blog I wish were already out there and that someone else were writing.  I don’t have time for it, but it really needs to exist.  This is the blog that shares the journey, step by step, of transitioning from full-time employee to successful business owner as a twenty-something female. I am starting a design business, so a lot of what I write about will be fairly specific to designers, crafters, inventors and artists, but whenever possible I will try to include more general information and resources.

It fucking HARD to start a business on your own, especially if you are unconnected, young and female.  There are a lot of excellent resources and organizations for general advice but the answers to specific questions, such as “Where can I get wholesale fabric?” and “What are the safety and labeling requirements for decorative pillows?” are much harder to come by.  Most of the folks who are currently where you want to be are busy people who need to work hard to protect their designs and sources from competition.  If you are trying to turn your hand-silkscreened wedding invitations into a full-time business, your first instinct may be to ask advice of the friend-of-a-friend with the thriving custom card business.  But since the success of your business might compete directly with the success of hers (especially if you’re both in the same geographic area) this puts her in an awkward position when asked about things like how she packages her goods, who she hired for her web design and where she gets her wholesale card stock.

That’s where this blog comes in.  As I bumble my own way through the start-up gauntlet, I will attempt to document every question and answer I encounter along the way, without stepping on anyone else’s entrepreneurial toes.  I’m  trying to release three lines by January: a line of plush toys, a line of gift boxes (sort of — more on this later), and a line of baby-related graphics.  These projects will cover a lot of areas in both product and graphic design, and will hopefully be helpful to a lot of different people.

I don’t know how often I will post, but it will likely be almost daily, since I learn an enormous amount of new information almost every day.   A lot of what I write will be Bay Area-based but like I said before, I will also try to include more general information and resources whenever I can.

I’m just one woman, so if you have questions, resources to add, or suggestions for topics, please feel free to e-mail them or put them in a comment.  I will be moderating comments to filter out spam, so they might not appear right away.

Thanks for reading and contributing,

Lauren Fleischer