Summer Financial Housekeeping
As we weather the summer heat wave and 100 degrees plus temps, it’s a good time to do a little housekeeping before business heats up in the fall. Here are 3 action steps you can take right now to set yourself up for success.
Be Aware of Mileage Rate Changes
According to the IRS website, the Internal Revenue Service has announced plans to increase the standard mileage rate for the last six months of 2022, effective July 1st. The new rate for business travel will be 62.5 cents per mile and the rate for active-duty military members will be 22 cents, both up 4 cents from the rate at the beginning of the year.
The IRS is making the adjustment to better reflect rising gas prices across the country. If this is a rate that you use, you’ll want to document your mileage on the last day of June so you can apply the lower rate for the mileage for the first 6 months and use the higher rate for the last half of the year.
Manage Inflation Costs
Take a look at your inventory. If you have products that are consistently outselling others, consider focusing on these money makers and cutting out the rest. Go as far as to analyze each variation of a SKU because there may be variations that aren’t worth the expense put into them.
If you focus on the “bread winning” products, you’ll be more efficient and more profitable, and we all know having cash on hand is crucial to survival right now. While this may seem like an insurmountable task, start small and analyze the top and bottom 20% of your money-making products. Once you have done that you can tackle the next 20% and work your way systematically through all products.
You also want to look at your promotional efforts. When you have several areas to focus on, labor costs and customer confusion can increase. Increased promotional activity can have a negative effect and tends to erode overall value perception. This can create a vicious circle of more promotions that lead to lower value perception.
Another area is Operational Expenses. If you don’t know where to start, just ask yourself, “What can I get rid of that I no longer use?” An easy place to start is to look at your credit card bills for the last three months. Start reducing in areas that you don’t receive enough return. We have all felt the increasing costs of Amazon fees and advertising, so having the cash to cover those things is important because taking out loans with interest rates that are steeply climbing will only eat into your margins, not help them.
Early Tax Prep
Check in with your tax Preparer before September. The big push for accountants in the fall is September 15 for filing corporate extensions and October 15 for filing personal extensions. Before you and your accountant get extra busy in Q3 and Q4, it’s important to take a few minutes and check in.
By now, you have roughly 6 months of data and can project your next 6 months. This doesn’t have to be a highly detailed conversation, just go over the big numbers. Ask your accountant to give you an estimate of your tax liability for the year. Make sure you’re setting aside the right amount of money for taxes because you don’t want to let the money sit in a tax account if your taxes are going to be less this year. You can use this to increase your inventory buy. You also don’t want to be setting aside too little. A big bill in April is never a fun prospect and with interest rates on the rise, you don’t want to borrow money to pay the tax bill.
While taking these steps may not save you from the rising summer temperatures, they will definitely help beat the heat of a busy Q3 and Q4. Take a look at any areas where you could save up some cash and work on getting ahead of the game so you’re not left sweating when business starts ramping up.
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