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Please note this post is for informational purposes only, please contact your accountant for tax advice.
It’s tax filing season and I wanted to share a couple tips for those business owners to try to make the tax season as painless as possible. What I usually do is reconcile all accounts. This means bank accounts and credit cards. Hopefully you’ve been doing this every month, but if you if you haven’t most credit card companies now offer year end summaries that groups all your purchases in categories so you just have to give that to your tax preparer.
Next, review your income. Is everthing that got deposited into your account income for last year? For example, where there loans, deposits, retainers? Any deposits or retainers should be in separate accounts, but occasionally they’re entered incorrectly and end up being shown as income when they are not.
Next is expenses. Is everything you paid out accounted for correctly? Is everything an expense or are their repayment of loans or equity? Did the owner take any distributions? If so, was this income or a return of equity? Did you have any payments to subcontractors or employees? If so you will have to file the correct forms to document those payments.
Lastly, take a step back and review you company set up, customer and profit and loss. Is there anything you would like to track better this year? What customers still owe you money? Is your company set up correctly to limit liability to the owners and employees?
Please contact me with any questions. Did I miss anything? Anything you think deserves it’s own post?
I apologize for the limited posts the past couple weeks. I dove head first into my business and things are going great. I have learned a lot and am having fun helping the companies I am working with. They seem appreciative of my time and I am making some progress. The last couple weeks I was playing catch up reconciling an entire years worth of credit cards and bank accounts and preparing 1099, W2s and the yearly P&L for the accountants. It was a lot of work, but I finally feel like this week things have started to slow down.
While I am embarking on this adventure I will be concentrating more on writing about some of the small business / financial things I’m working on and less about green building. I hope to get back to writing about this more often, and Tony will put up a relevant post every once in a while.
I just finished The Big Short by Michael Lewis. I read a lot of books and this may be the best book I have ever read. I read Too Big to Fail, by Andrew Sorkin, which was also a great book, but it was more about what happened to the banks after the crisis hit. It told the story of the effects of the crisis on the big banks and how they tried to survive. However, when I finished the book I still didn’t understand why the banks were so close to failing. Lewis’ The Big Short answered all my questions.
The book follows three groups of people who foresaw the mortgage crisis. They then figured out a way to “invest,” or place bets, that would increase in value if mortgages went bad. The book gets very detailed about how they did this, but the basic idea is that they bought insurance against mortgage bonds. Mortgage bonds are groups of mortgages bundled together. Their intent was to reduce risk and be able to be rated. The ratings would tell investors the riskiness of the bonds and charge higher interest rates for riskier bonds. A mortgage bond made up of interest only mortgages would be graded lower (riskier) and pay a higher interest then a mortgage bond made up of all 30 year conventional mortgages.
These separate groups at different times all came up with the idea to look through these mortgage bonds and find the groups most likely to default. They bought insurance that would pay out the full value of the bond if the price went down. The price of the bond would go down if the mortgages that made up the bonds stopped being paid. They all realized that there were mortgages that the homeowner had to put very little money down to get and received a teaser rate for the first two years. They predicted that after 2 years, when the rate reset to a higher interest rate, homeowners would begin defaulting.
The information provided in this book was so interesting, but the stories of the investors who shorted the mortgage bond made the book read like a fiction. The investors had the foresight to see that the housing market was unstable. They then created an investment that would pay out if the housing decreased in value. Lastly they had the courage to put hundreds of millions of dollars on the line that supported their idea, and to stick with it for 2 years or more, while they waited for what they thought would happen to actually occur.
The book was interesting, informational and inspiring. I would recommend it to anyone who is even remotely interested in business or the housing market.
I recently began the spring semester and one of my course’s is Design for Green Materials. This course will introduce us to green materials and the process these materials follow throughout building, and design. In class we watched a short film about the cycle of stuff and how we consume. Here is a link to that film.
It got me thinking about the cycle. Here is a what I came up with;
Being able to change the way we consume products is a task that will alter the way we have become accustom to living. We would all like to think that it would be easy and attainable to curb the desire for more stuff, but we still go out and buy. How many times have you gone to a store with one item in mind and left with bags full? To help the cycle become more sustainable we have to look to and integrate green materials into the design. Some people will buy the product because of its impact, but most don’t care to think about it. Do you think about the type of plastic your phone was made from? Was it the deciding factor that made you purchase that particular item? Consumption is a large part of the problem, but until we can all realize that we don’t need all this stuff, we have to look at design to take us back to the cradle we came from.
My professor also set up a class blog. http://sdn-604.blogspot.com/ There are no posting from our class yet, but keep an eye out they’ll be coming soon.
Below is part of an email I sent out to some family and friends yesterday. The responses have been amazing and makes me much more confident that the choices I am making are the correct ones. Thank you to all that have emailed/called/texted. I am extremely grateful for everyone’s support and look forward to the future.
For the past couple of months I have set up my business and prepared for the future. I set up a business checking account, got a business credit card and applied to hundreds of jobs looking for part-time work. Last week I finally found a position that was right for me and made the leap. I no longer have full-time employment and am out on my own as a financial consultant in the real estate industry.
Since I made that decision my entire perspective on life has changed. I always acted like I was my own business but now I feel it. I am determined to find new opportunities for myself and meet with people who could help me find those opportunities.
I believe I can do the most good for the companies in the real estate industry as a part-time short-term consultant. As a short-term consultant I can work with the company to develop how the company should be set up based on its strengths, weaknesses and long-term goals. I can then work with the existing accountants bookkeepers and administrators to put the plan in place. I will review the accounting system to insure the correct accounts are set up and classified in a way that corresponds with the company goals and policies. I will then work to train the staff to enter income and expenses to the correct account and billed efficiently to the client. Once the plan is in place I am available to check in weekly or monthly to answer any questions, perform a company review and work with the staff to develop responses and updates to any problems.
“Faith is taking the first step even when you don’t see the whole staircase” – Martin Luther King. I look forward to finding the rest of the staircase.
I read a blog the other week that called our current times, The Age of Choice. It was about all the information that is available now and the choices we can make because of this additional information. They looked at it from a more global perspective, but I wanted to take a look at consumer purchasing power. In our current times we have some of the best information available. This allows us to use the purchasing power we have to affect change in the marketplace and the world.
A brief history of purchasing power would go something like this –
Early in the market economy consumers were just happy to have the ability buy the goods. This was a transition from people producing everything for themselves to specialization in a trade or industry. As the market economy expanded increased specialization led to increased market efficiency. For example, a seamstress would concentrate on making clothes. He or she could make higher quality clothes cheaper and faster than a farmer trying to make his family clothes while producing the food as well. The farmer realizes that if he trades some of his food for clothing he can concentrate more time on farming and produce more food more efficiently. This creates a market where there are more goods available at lower prices.
This small example repeated itself in almost all industries all over the world until most of the population had a specialty and traded the excess goods they produced for other necessities. As the market became more efficient certain people began to accumulate wealth and invest this money to produce faster and cheaper. This created the industrial revolution which eventually led to the production line. The production line is extreme specialization; the workers do not specialize in one product, they specialize in a single part of the product. This also took power away from the individual employees and put it in the hands of those that owned the machines and factories.
After the industrial revolution and the invention of the production line, producers had all the power. They were able to keep wages low, control what was produced and ultimate goal was to produce the cheapest way possible. Consumers were getting paid less but also had cheap goods available to them. Both world wars and the depression put strains on the supply and demand of goods. After World War II the market was more concerned with producing enough goods for the public, then the quality of those goods. Only in the past 20 years as generation X and Y have grown up without having to worry about the quantity of food or other products, or memories of the great depression have consumers decided to pay more to get better quality goods. Consumers started to look at how goods were produced and not just price.
This trend needs to continue. Consumers need to realize the true cost of goods including the cost to the environment and the labor market. Energy intensive food production with large amounts of fertilizers, pesticides, and genetic modification is not producing the quality of food we need. The same can be said for most other industries. Inefficient housing produced with low quality material create a housing stock that uses to much energy to operate and do not have the indoor air quality that improves the life of its inhabitants. A car industry that consistently produces larger cars with more horse power rather than concentrating on energy efficiency. However, the industries will not change without the public demanding it. We need to use the information and purchasing power we have to make better decisions that will influence industries to produce more efficient and higher quality goods.