Well, the end of the first quarter for the new business happened recently, and I finally got some numbers together to look at the results. In fact, the bank representative emailed me yesterday in order to file a report on the new ownership, so it was easy to just send him the spreadsheet. Hopefully, the bank is pleased. Bills are getting paid and payroll is being met at the same time that debt is being eliminated so it should all be good. February was a bit lean, but weather was terrible in January and February. The business was actually totally shut down for 3 days, and we still managed to come out reasonably unscathed.
Comparison to 2013
I won’t share detailed numbers, but I know the sales from last year and divided by 4 to come up with a quarterly average. When I compare to the net receipts after taking out sales taxes, I find that the current number was up by 7%! And that is without anyone doing full time sales. The business had tried to get lean in order to survive and only had 3 workers down from 5 at one point. We have talked about bringing on a 4th part-time in order to get someone out to do more sales and customer interaction. That will probably happen this quarter.
I think one of the issues with the prior management was lack of attention to detail when it came to finances. Looking over the books, I got the sense that there was lack of awareness as to the actual expenses of the business. I got an initial proforma from the prior owner, but went to look back at the past 3 years’ tax returns in order to come up with my own numbers and make some modifications. There have only been a few surprises when comparing expected vs. actual performance.
First, the amount spent on telephone has been double. It could be because we added another cell phone so my wife could have a dedicated business phone since she has been doing a staggering amount of work during these first 3 months to keep things heading in the right direction.
The other surprise has been the expense for health insurance. The prior insurance company pulled out of the market due to ObamaCare and the new policies with a different company ended up being about 30% more expensive for a similar plan but with slightly less favorable deductibles. That is one reason that the next employee will be part-time. No way I want to pay another 25% increase to the benefit column at this time.
The good news is that at the end of the quarter, we were able to show a slight profit after paying all expenses. Hopefully, as spring and summer arrive we will be able to continue the current pace or even grow a bit more.
I know this isn’t the typical tax season, but it is for me. For the past several years, I have gotten an automatic extension so that I don’t have to file until October 15th. Since I will be leaving the country toward the end of September, I have a self imposed deadline to get all the information to the accountant before I leave, which means that I will be working to get all the information and data together in the evenings this week.
I already have most of the information gathered from the rental real estate. Now I have to get some stuff together related to the usual 1040 stuff. I would say I am about halfway done and will be hitting it quite hard tonight.
I don’t necessarily like to procrastinate, but it did become a necessity a few years back and I haven’t been able to fully recover yet, but that issue should get resolved this year.
I certainly don’t enjoy having to spend so much time putting all the information together in a format that is easy for my accountant to work with, but the effort is definitely worth it.
Communication and Knowledge is Important
Even though I have an accountant fill out all the forms and prepare my taxes, I learned several years back that it is important to know the tax code (as best as it can be known by any individual) and to communicate your situation effectively. It is also important to have a rough idea of what you might owe and why.
After getting my taxes back one year, I was surprised to see that I owed more that what I thought I should given my circumstances. It turns out that the accountant had forgotten about a special circumstance that entitled my wife and I to more deductions than was actually figured into the numbers. We ended up sending in an amended return.
Also, we had one year where we were hit with a failure to file penalty which was absolutely not true. We had an extension which had been filed appropriately. A simple call to the accountant resolved this issue, but had I not paid close attention, the outcome may not have been pleasant. Again, knowing what I should owe has helped with some of these human errors.
Fortunately, my situation hasn’t changed much over the past several years, so it is easy to know what to expect. Also, I try to read a lot about taxes and know what is changing from year to year. I am concerned about the potential impact of the fiscal cliff as a result of changes in the tax code and on government spending and have been trying to pay off debt knowing that we might be entering another recession.
I doubt many of you have been focused on taxes this month, but what are your thoughts on the fiscal cliff. Doing anything to prepare?