Gross Revenue?

[Dar16]

Hi,

When is the gross revenue from my business mine for personal use?  So far I have only spent money on supplies etc but at some point I expect to sell items and for that to cover the expenses.  In theory I will have money left over.  My thought was to put most of that back into the business for more supplies etc.  But can I take some for myself? Is there a formula for this or a document that has to be filled out to track the money?

Thank you,

Daria

[jscottjr_CPA]

Hello Daria, I'm happy to help you with your question today.  How is your business organized?  Is it a sole proprietorship (you own it alone) or do you share ownership with others (a partnership).  Knowing the ownership structure can help you determine how much of the net profits (Gross Revenue minus your business Expenses) are available for your personal use.

In general, you want to leave enough money in your business to keep it operating and growing.  Based on how your business ownership is set up, you can determine how much money you should take out for your personal use.  Are you the sole owner of your business?  Have you made an S-Corporation election?

[rschule1]

Hi There:

Unless barred by contract the money is yours to use whenever and however you need. However it's important to segregate business income and expenses in an account separate from your personal account. From your business account, you should perform monthly bookkeeping which will keep track of business income and expenses. Our sister company QuickBooks has world class software to assist. After bookkeeping you will prepare a a year end income statement, which you will the use to prepare schedule C of your tax return.      Btw transfers from your business checking to your personal account for bookkeeping purposes will be classified as non taxable draws.

[pk]

@Dar16 , from your post it sounds like this is your first year as a business owner. Would strongly recommend   you to have a discussion with an accountant / lawyer to  understand the book-keeping rules for a business and the tax laws that affect  the business.  There are classes offered  by your state small business development  that perhaps you could attend. 

Besides the self-education , there are few things that you need to rightaway---

1. Set up a business account at a bank ----- You need to make a deposit to this account   if you are sole investor  and / or all contributions from your partners in the business.   All incomes  and expenses  of the business are into / out-of this account.

2.acquire the services  of an accountant   ( or buy & use accounting software like quickbooks ) to keep track of the expenses and incomes.

3. Register with your state  for sales tax  ( if you are selling items ) accounting , including cerdit for sales taxes paid on components that go into the product that you sell

4. Get an EIN from the if you are going to have employees

5. Decide  on the type of entity the business is going to be and rules of the business -- need legal advice/help 

6.If you are a self-employed  ( i.e. providing service only ), you need to include in your pricing 15.3 %  SECA ( equivalent to FICA Taxes for the self-employed), in addition to profit target.  Stae and federal taxes are also  your responsibility , except that you must now pay quarterly  estimated taxes  ( same as an employee ).

There are  host of other things that go into running a business.   I am not trying to scare you , but getting inot business with knowing your risks will assure the survival of the business.

If you want / need more help, you are welcome to PM and I will do my best to help you ( please no Personally Identifiable Information).  I have had my own corp., many years back )

pk

[Dar16]

Sorry for forgetting to add those details.  I just started a sole proprietor crochet business.  I do want to convert to a single member LLC later on (and the different tax options there) but for now I didn't want to bite off more than I can chew.

[jscottjr_CPA]

Hello,

Thanks very much for the additional details.  Just yesterday one of my family members made a really nice crochet scrunchy.  I said if you make them in school colors maybe you could sell them!  I've seen that you can make some really beautiful work with crochet.

I'm happy that there are experts weighing with good information to help you. Setting up a separate bank account is one of the very best ways to start keeping track of the money your business makes.  If you only put money in from sales and take money out for expenses, you can watch the account grow and when it gets to a certain point, you can make a decision to take some money to pay yourself (for a sole proprietorship this is called an owner draw).

Having the separate bank account also makes bookkeeping much simpler since don't have to worry about separating out your personal expenses.  Make the time and continue to learn about business and continue to use this forum to get your questions answered!

[Dar16]

Thanks! Crochet is definitely beautiful and you can watch a simple "magic circle" turn into anything from a blanket to person/character.  I hope your family keeps up with it.

Are you able to give me more information on an owner draw?  Do I have to do anything specific for documenting that? Are there any rules on what the process of that looks like or how it has to be handled?

[Art EA]

Hi

When you make enough money to cover all your expenses you are making a profit and then you will start paying taxes on the profits.  Most of the time you will try to buy more supplies to sell more and make a larger profit when you first start to make sure you can continue in business.

Gross Revenue - supplies = Net Revenue     Net Revenue - Operating Expenses = Net Profit