Figuring out your business income tax return involves more calculations than we have shown so far. One major difference involves cost of sales, which we have viewed as a simple percentage of sales for forecasting purposes. Youll need to follow more complicated rules when computing your business income tax return. Read below to learn how to spot employee theft. You can skip this discussion if your business has no inventory.

Heres how to do it the right way. First, take a physical count of all your merchandise for resale every year or every few months. Even if you have a computerized inventory system that can tell you how much inventory you have at any time, its a good idea to take a physical inventory every six or twelve months to reconcile the real inventory with the computer inventory. Once you have a complete listing of the description and count of all the goods in your store at a particular date, then you apply the best figures you have for what the merchandise cost you when you bought.

Multiplying the unit cost of each item on your shelves by the number of items you have and adding purchases during the period gives you the cost of the goods available for sale. While there are a number of different theories on which cost figure to use (the latest or the earliest), the critical thing is to make sure you do it the same way every time. Then, you can make accurate comparisons from year to year. Of course, if you have a service business or business with no inventory, the inventory valuation discussion is moot.

After you have developed a total dollar value of the goods you have on hand, you can calculate your real cost of sales this way:

1. Add together the goods you purchased during the period and the inventory amount at the beginning of the period. (This total represents the dollar value of the goods you had available to sell during the period.)

2.From that amount, subtract the dollar value of the inventory at the end of the period.

3.The difference is the cost of sales for the period. Heres an example that demonstrates how you do this:

This calculation has more use than merely filling out IRS forms: It can let you know when someone is stealing from you. Suppose you have a good estimate of what the cost of sales percentage should be, either from past statements or from a good understanding of your business. Suppose further that you expect a cost of sales of 61.5% and that you actually had a cost of sales of 77.3%. What does that mean? It could mean that some of the merchandise you buy for resale is leaving the store without any money entering your register. At any rate, it means that you need to do some serious research to find out what is really happening.

Chapter 7: Your Cash Flow Forecast and Capital

Spending Plan

Overview

Quick Plan. If youve chosen the quick plan method to prepare a business plan (see

A. Introduction

In you drafted your estimated Profit and Loss Forecast. While it tells you a lot about the big financial