I met with my accountant the other day. She’s brilliant. She knows all the little ins and outs of things. She helps me see where I can save extra money, where I can get more credits, and in general, she helps me stay organized. One thing I find interesting about taxes is how there is no one way to do them. There’s always an option for how to record an expense, what category. There’s a lot of flexibility in there. It’s not that we want to cheat the system. As frustrating as taxes are, I do appreciate that we have highways, unemployment for individuals who lose their jobs, and law enforcement. I might not always agree about how these programs are run and managed, but all-in-all I’m glad they’re there. However, I don’t want to overpay my taxes. There’s just no need for that. I remember my dad telling me when I was younger a quote about taxes that I learned was from Judge Learnedhand, who was serving over a century ago. He said,
“In America, there are two tax systems; one for the informed and one for the uninformed. Both systems are legal. Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”
I love that quote because it encourages us to take ownership of our taxes and understand the system, so we can pay our fair share, and nothing more. Regardless, my accountant is brilliant, and the sweet thing takes time with me when I talk to her, even when I know she probably finds it ridiculous how many questions I ask her.
Anyway, this past year my bookkeeping went well. It wasn’t too bad, but it could be better. I was reviewing things that have made my bookkeeping simpler and easier to manage, and I wanted to share these five tips with you.
Use a Single Credit Card for All Expenses & Nothing Else
The first tip is to dedicate a credit card to your business and only use it for your expenses, as much as possible. I still pay for outside dogs with Zelle or cash, but everything I buy for my dogs goes on a credit card and nothing else, not even a coffee…unless I’m delivering a dog.
If you follow Dave Ramsey and the idea of using a credit card is making you cringe, I get it. It’s okay. You don’t have to use a credit card. You could use a debit card, ideally the one connected to your bank account for the business. This would keep things simple. However, when I look at how much money I spend per year on my dogs, especially dog food, it’s nice to get the 1.5% cash back on the credit card. HOWEVER, I will note that unless I have a 0% special on my credit card, I’m paying my balance off in full each month, as per the terms of the credit card agreement. This way I don’t pay interest on my cards. No cash back will ever compete with interest. If you’re not in a position to pay the card off, then it might not be the best choice. It might be better to stick with a debit card.
Having that said, I do like the flexibility I gain with a credit card. For example, if I’m low on microchips, and puppies are ready to go home, I can order the bulk 25 microchips, instead of the 5 pack, which was an issue I ran into years ago when I didn’t have a credit card and my funds were really tight. I save a lot of money now because I’m able to pay for things in bulk. It also makes receipt tracking simpler as there are less receipts and less time spent ordering.
Have a Separate Bank Account
The second tip is to have a separate bank account for all your dog breeding income. Even if you haven’t made an LLC yet or you are just operating as a sole proprietor, you’ll still want a separate bank account. You can use a second personal bank account at the same bank that you currently have your account, if you like. The IRS doesn’t care if you use a personal bank account or a business account. Business accounts are more a “product” of the banks, as opposed to a requirement for business.
What is nice about having a bank account is that it allows you to keep things separate. When they are separate they are simple. It’s easy to track what income comes in, what goes out, and it’s easy to keep a balance in the business account that will prevent you from actually spending that money in your personal account.
I remember back when things were tight how everything was all clumped into one bank account. It felt like I was robbing one business to pay another. Rent would feed the dogs, then the dogs would pay the mortgage. It was messy. If you’re in that place, don’t worry! I promise, with diligence, it can get better. It all starts with a plan. These are often the growing pains of starting a business–not just a dog breeding business, but any business. Remember, no business closed because it grew too slow, only because they grow too quickly, incurring more expenses than are justified for the revenue. Again, make a plan, work on making it better. We all have to make a few adjustments. Learn from my messy years! That’s why I’m writing this podcast!! Remember, you don’t need to fix it all at once. Pick one thing to tackle for 90 days, get the system down, then move to the next thing.
You’ll also want to use the business bank account to pay the credit card off. This makes everything flow well and makes it easy to keep track of. When recording receipts, one thing that’s often confused is that a payment made to a credit card is not a recorded expense. Rather, the expense was recorded when the item was purchased with the credit card.
Want to Get the Tracking Expenses Cheatsheet?
Separate Your Receipts When Making a Purchase
This next thing is quite possibly the best game changer in the money management process. This annoying, but incredibly useful, tip was taught to me by Bill, and oh how it really irritated me when he’d call me out on not doing it!
The third tip is to separate your receipts out at the register. This is especially useful if you are not yet using a separate card for all expenses. But even if you are, it’s still helpful. Let me show you.
I use raw chicken drumsticks and leg quarters to keep my dogs’ teeth clean. I used to throw this in with my grocery bill, along with the kids’ snacks and our meals for the week. This made it really hard to pull the chicken out of the receipt and expense it. You’d have to find the line item, break it out and, while food isn’t taxed, other items like dog food are taxed, so it means you have to then calculate the tax on top of the purchase. It’s a total pain in the butt.
It takes two extra minutes, maybe less, to finish your personal transaction, then ring the chicken up separate, run your card, and have a completely separate receipt that’s just dog expenses. The idea is easy, the execution is also pretty easy, but you know what makes it hard? Remembering to do it. That’s the hardest part! You just have to get the habit down of separating purchases at the register. You’ll make mistakes, but it gets easier, I promise.
So if you’re using one credit card for all dog stuff, then why might you want to run multiple transactions at the feed store? What a great question you have! Here’s why: it’s much easier for expense tracking if you have a single expense category in a receipt. It’s really helpful to track what costs go into puppy raising and what costs go into maintaining your adult dogs separately, and you’d definitely want to track facility maintenance costs separate from dog food. Otherwise it would be hard to see where you’re spending money at the end of the year.
If you recall from a few episodes back, I spent too much money on dog food last year. But if I didn’t track it separately, I wouldn’t know that. This is why it’s important. Another example, to help you understand, comes from our construction company, when Bill was really digging in and getting me to separate receipts. I would often put tools and job materials on the same receipt before I was … err … trained. This meant that the receipt might have a drill on it, the saw blades, and the flooring for a job on one receipt! Later, in bookkeeping, I would have to split that receipt—and the taxes—as three different receipts! One for the drill because it’s a tool, one for the saw blades because they were expendables, and a third for the flooring, because it is for a job. You also want to track jobs separately, so all job materials would need to be logged on separate receipts to properly and easily track them.
Write the Expense Category at the Top of the Receipt
This brings me to my next tip: write the expense category at the top of the receipt. It takes just a second or two to write the expense category at the top of the receipt. So if it was dog food, write dog food at the top of the receipt. If it was treats and toys, write that. Maybe you were buying litter for the puppy litter box. That would be puppy-rearing expendables or supplies.
If you’re at the vet office, you’ll want to separate some of those expenses, too. There are two types of expenses in the world of accounting: operating expenses and cost of goods sold, also known as the sounded-out acronym, COGS. It’s easier to understand COGS first. Simply put, something falls under cost of goods sold if you only have that expense if you are making your product. So, for us, that’s generally our puppies. If it’s an expense we only have when we are producing pups, then it falls under COGS. Some examples are puppy registration expenses, microchipping, vet bills for the puppies, breeding expenses and fees, litter box media, and puppy packs. All of these expenses we don’t have if we don’t have puppies.
As for operating expenses, it’s pretty much everything else. Expenses that you would have whether or not you have puppies for sale. For example, you have dog food for your adult dogs whether or not you have puppies. Sure it might be a little more if you are feeding a mom who is nursing, but to me that’s negligible and harder to break apart than it would be to keep it together. I generally put all my dog food receipts under dog food under operating expenses, because that’s where it’s most appropriate and, while I could technically separate some of the bags for dog food for puppies, I find that’s more work for me than is necessary. If I fed my puppies a different food, it would be easier; but since I feed the same, I don’t bother separating it.
Write down the categories you want to track. Organize them under operating expenses or cost of goods sold. I have a Cheatsheet to help you get a simple list together. You can get it using the form below. Remember you can always make it more specific, but these general categories will at least give you a simple way to keep track of your expenses into categories that, once tallied, will give you a clearer picture of your business and where expenses are going.
Secret side tip: keep a small note card in your wallet with the categories you’ve selected. When you get a receipt, you might not remember the category names you chose. Pull out the notecard, pick the right one, then write it on your receipt. This will create uniformity in your receipt labeling, which makes it much easier to pass the receipts off to a bookkeeper or even enter them when you’re tired and want to watch tv while you record them.
Create a Home for Your Receipts
Once you have your receipts, and you’ve placed them in a category with the right label, you need to do the next critical step… don’t lose them! If I learned any specific thing from Marie Kondo, I learned that everything needs a home or it becomes clutter, … or it’s lost.
A very simple way to give your receipts a home is to have a designated folder for the receipts. You could keep it in your car, you could keep it on your desk, or you could have one for both.
It’s funny how much easier things are to keep track of if you have a home for them.
Another secret side tip: I know it’s super old school, but print out your digital receipts. I find that the online receipts are the ones I’m mostly likely to misplace, because they aren’t something I can file in my folder. I’ve now made it a habit to print out all my receipts after I make an order. Then I can take them, write the expense category at the top, then put it in its home, my file folder on my desk for the ranch.
Once you record the receipt, whether that means you’ve logged them onto a spreadsheet or added them to your accounting software, you can stamp them. I picked a cute purple checkmark stamp. Then I file them in an accordion file folder, … well, now my bookkeeper does that for me.
Then that’s pretty well it! You have all your receipts for the year gathered together, in a home, labeled, entered, and filed. It’s beautiful.
In polling members of the Dog Breeder Society, most people had an idea of what they were supposed to do, but didn’t have a good system. I hope these tips will help you have a system!
Thank you for listening to another episode of the Honest Dog Breeder Podcast, with me, your host, Julie Swan. Thank you, again, and I can’t wait to see you in the next episode!