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    It's August—the lull before Q4, or maybe not a lull if you've gotten crazy busy with COVID sales. In any case, we must look ahead to Q4 and anticipate how we're going to handle what may be an unprecedented level (or a new precedent) of online sales. There are a few of considerations I want to ensure are top of mind: Inventory, Growth and Taxes.

    Let's talk about inventory and growth.

    How do you plan for this coming 4th quarter? I don't have a crystal ball, but I do have some words of caution. While it may feel like anything at Amazon will sell, realize that that comes with some risk. Risks such as Amazon changing the rules of the game, unemployed folks not shopping, shipping delays, etc. Be sure that you're not over-extending yourself and getting into a debt situation when you don't have the cash reserves to navigate the unknown. A bridge loan to cover a payment until a deposit hits is not too risky. A new product that may not get to the warehouse until the last minute is risky, especially if you borrowed the money and will be paying it back after the holidays when sales slow down.

    Build your cash reserves.

    Work on building your reserves now if sales are going well so you will be prepared to grow your inventory for Q4. If you're following the Profit First method, you will be growing your inventory account as your sales grow. You will also be growing your tax account. In addition to setting aside tax money, now is the time to begin your 2020 tax planning.

    Visit with your tax professional.  tax accountant meeting

    I encourage you to take a few minutes and visit with your tax professional. Now is a bit of a lull for them, too, before extensions and Q3 returns are due. Discuss with your tax pro the following three things:

    1. The anticipated impact of forgiven PPP loans and EIDL grants. Currently, these funds are taxable, and while that may change based on new legislation, you need to plan as if you will be taxed on them. Ensure you set aside funds now to cover that tax.
    2. Project your sales both conservatively and aggressively to understand the potential for your tax liability. As you are depositing money, ensure you are building up an account for taxes to cover the bill that will come in April.
    3. Make sure your estimated tax payments are close enough to your anticipated tax liability so you are not penalized for underpayment. The IRS penalty is typically 0.5% per month or 6% per year. From the IRS website:

    Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

    From <https://www.irs.gov/taxtopics/tc306>

    Prepare your strategy.

    Take a few minutes now to prepare a strategy before the chaotic and extremely busy Q4. While there will be unknowns and twists to the months ahead, you will be able to go forward with confidence knowing you are working your plan to the best of your ability.

     

    unknown-1593184688559Interested in Profit First?

    If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you!

    You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional, I will teach you why Profit First works so well for ecommerce businesses and the particular challenges for businesses that have physical products requiring inventory management. You will learn how your behavior drives your money management habits for your business and how you can set up your business bank accounts to work with your habits.