Friday, May 9, 2014

Your Accounting System

Last month we looked at how setting up good systems helps you run your business more smoothly and increase productivity and profitability.  This month we'll take a look at a system that representatives often ask for help setting up especially around tax time, Accounting.  Your accounting system is a vital part of your business because it allows you not only to know how much profit you are earning, but also provides you with proof of income.  This is especially important if your business provides a large portion of your household income since there will be times when you need to prove your income for government programs, and certain financial transactions such as buying a home. Accounting is also one of the broadest systems in your business since it involves any time money or product comes into or out of your business.

Your Accounting system will include 2 parts.  The first part is what I like to call the banking.  That is depositing/processing all the payments you collected from your customers and paying Avon for your orders. Your system will vary depending on what types of payments you accept and how you prefer to process those.  Do you deposit cash and checks every day or once or twice a campaign. Do you deposit customer checks into your account or take them to the customers bank to be cashed. Are you processing credit cards through Avon or use a service like Square or Paypal Here?  Whatever method you use, completing the process the same each campaign will help ensure that nothing slips through the cracks.  

The second part is the tracking of your income and expenses and this is the part that Representatives tend to have a lot of questions about.  There are as many accounting systems as there are people who use them and what program you use is not important as long as it works well for you.  You don't need anything too complex for your Avon business, in fact the simpler the system the better.  You can use a program like Quicken or which works like an electronic checkbook or you can use a spreadsheet program like Excel or a notebook if you prefer the pencil and paper method. Whatever method you choose you want to have a way to list each financial transaction and categorize them so you can easily plug those numbers into a Profit and Loss Statement.  You'll have categories such as Product, Processing Charges, Office Supplies, Payment from Customers and Leadership Earnings to name a few. 

A Profit and Loss Statement is simply a report showing how much you paid or received for products and services for your business broken down by category.  This is what you would use as proof of income if you ever need it and is also where you get most of the figures you would need for your income tax return.  This is also where you can analyze how much you are spending in different areas of your business to see if there are places you can cut spending and increase your profits.  You can find lots of examples of Profit and Loss Statements online like this one

Your accounting shouldn't take up a lot of your time, maybe about 15 minutes each campaign to record everything in your program or notebook.  The transactions you will enter will include obvious things like:

How much your customers paid for their orders broken down into cost of products, processing charge and sales tax.
How much you paid Avon for broken down into cost of products, processing charge, samples and demos, supplies like brochures and bags and products for personal use. 
Credits for products processed through EZReturns.
Earnings for Direct Delivery orders
Leadership Earnings and Bonuses

Slightly less obvious things like:
How much you spent at other retailers for things such as office supplies, or supplies for making goodie bags and baskets. 
How much you paid for events or advertising
Postage for mailing brochures, thank you notes, welcome packs, etc. 
How much you spent on drinks/food when meeting at a restaurant for business purposes like a meeting or signing up a new representative. 

And the easily overlooked things like:

Product given as payment, for example trading products with another direct sales rep, or paying a helper in product. 
Business use of your car - you'll need to track your mileage and your actual expenses like gas, maintenance, parking and insurance.  
You may also be able to take a home office deduction on your taxes so you will want to track expenses related to computers, cell phones and your home like rent/mortgage and utilities. 

Everyone's tax situation is different so I highly recommend working with a Tax Professional who specializes in Home Based Businesses for questions about whether you need to file a return for your business and what deductions you can and can't take on your return.  This will help you determine what categories you want to use to track your income and expenses.

Chris Arnold
Avon Gold Leader
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