popupbooksQuarter 2 Reporting Ending June 30 is here. It is the end of the second quarter of the year and I find this to be the most important. Why? Goal Setting. If you haven’t met your goals for the year it’s a good starting point to feel calm that you have met half your goal or feel stressed that you have to work harder to get there. Physical Inventory Value. Having an inventory value allows the consultant to reconcile their inventory for future sales, budget and plan. Gross Margin. For Lularoe Consultants it can be even more important because of the value of inventory carried. Having an accurate inventory mid year allows the consultant to understand their gross profit margin and make decisions on this. This margin notated as a percentage of sales by cost of goods should be between 40-60%. (Although rare to see above 58%) Comparison. Quarter 1 reporting vs Quarter 2 reporting can help find errors quicker and see progress for the year. Gross profit margins should be consistent unless a large donation or discounting of inventory occurred in that quarter. Now understanding the results of your gross profit margin;
Margin low (under 35%)
- Donated inventory
- Discounted inventory
- Buying from other consultants more often/Buying less from Lularoe or wholesale distributor
Margin high (over 60%)
- Missing purchases of inventory
- Error in sales
As a bookkeeper preparation for quarterly reporting which documents income, expenses, inventory and gross profit for the year can’t be done till July. In July is the best month because June has been completed and I can ensure all sales, purchases and a physical inventory has been completed at the end of June. The most accurate report can be created once income statement has been reviewed. If you don’t know your gross profit on sales I recommend joining my group Pop Up Books. It’s not the simplest bookkeeping and accounting task but very important. This percentage will be different for everyone based on their volume, discounts, giveaways and purchases. Small calculations accomplished on an income statement speaks volumes and sketches out everything that is needed. The bottom line is your net profit and tax liability. Did you put away enough for tax liability?
If you didn’t owe taxes for the previous filing year you won’t have to worry about paying quarterly taxes this at this juncture. However it’s never a bad idea to have some savings set aside to pay those taxes for the year you are in. It is always best to separate business from personal, have taxes aside you may owe for your business and be prepared. You don’t want to be hit with a large bill at the end of the year or expect your normal tax refund and not have tax money set aside.
What if you have all this money set aside at the end of the year and don’t have to use all or some of it? Merry Christmas! Your business just paid you a nice bonus check. You can reinvest, save for retirement, pay off that credit card or stuff your mattress. It’s all yours to keep and not taxed upon. At this point you saved to plan but the excess can now be used because you put away money and we only pay on profits of the company.
It is common to think you have no money in your account I must not owe taxes. This is NOT True! We pay taxes on profits we made from buying an item at wholesale value and selling for a profit. Sometimes expenses outweigh that profit and sometimes they don’t. You will make much better business decisions if you know where you stand with your business on a quarterly basis. Plan, prepare and budget can lead to success of your business.
How should I proceed with Quarter 2 Reporting? Understand your gross profit margin with an income statement designed to calculate cost of goods, take a physical inventory and calculate WHOLESALE value. Prepare, budget and plan for the rest of the year. Start today it’s not too late. *Simplest way includes correct software, training on income statement and physical inventory sheet to calculate your value of inventory.
Happy Bookkeeping Basics and Quarter 2 Ending June 30 Reporting.
Why is gross profit margin so important? Does it trigger audit with Irs? My % is within range, just curious. Thank you
HI Deborah! Great question! The gross profit margin for our industry is between 40-60%. If you were say only making a 20% margin you may be in a red flag category if they don’t see you liquidating inventory to go out of business. It would be questioned that you were hiding income to deter paying taxes. Your net profit would in turn be negative year after year in some cases and the IRS would look at it like you were avoiding taxes. Having roughly the same profit margin from quarter to quarter is a good indicator you haven’t missed anything unless you know you donated or wholesaled inventory in that quarter to warrant a decrease in profit margin.