Say “hi” to Dennis!
Dennis has been running a fairly successful Amazon Reseller Store for a couple of years and is looking into how to improve his cash flow…
Particularly how to reduce his tax bill!!
Dennis overheard a rumour going around that went a little like this…
“Buying stock will reduce your tax bill”.
Being driven and determined to improve his Business, Dennis channelled Dale Winton in Supermarket Sweep and went Wild In The Aisle (well, to a point!)
This rumour that Dennis heard was, unfortunately, 100% FALSE!
Rachel explained it to Dennis like this…
“The only thing accomplished by buying stock too early is the draining of your bank account.
Unless you can shift the stock immediately, profitably, this leaves you with stock sat on the shelves with the potential to expire or get damaged.”
Not ideal!
Plus, your tax bill is actually calculated from your Profit & Loss.
Stock is an Asset of your business and sits on your Balance Sheet (which is basically your running total from day 1).
When you sell an item or use materials to make an item, you reduce your stock holding.
When you sell stock, it becomes a cost of Sales and is then included in your Profit & Loss…
Matching your costs and income against each other.
Only when we get to this point is it included in your tax computation!
Many companies will put the cost of stock as they buy it into “cost of sales” in their accounts.
But then at year end, their accountant must make adjustments to reflect the stock held when they do management reporting for you and subsequently produce your year end accounts.
At year end, your Accountant may request a year end stock count and backup paperwork.
The moral of the story is…
Buy your stock as close to the point you will make or sell as possible.
This is known as Just in Time principles.
And this is the most efficient way to run your Business by far!
I can probably help with developing systems that attain that level of efficiency with you.
Rather that worry about your upcoming tax bill, re-channel your attention into the successful management of your stock and cash levels.
Better yet, let’s do that together!