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As a small business owner or someone who is self-employed, tracking your business-related expenses and understanding what you can and can't deduct while doing your taxes is critical. Not only can it maximize your small business deductions and save you lots of money, but it can also help you reduce your risk of being audited.

Some of the most common business-related expenses are travel costs. Whether you drive to meetings often or fly out for conferences and stay in hotels, understanding what is and isn't considered a travel expense is an important aspect of small business accounting.

What Is a Travel Expense?

However, not all business-related travel expenses are deductible. According to the IRS, you can't deduct anything extravagant or unnecessary, so don't try ordering a private limo service to pick you up from the airport and writing it off. You also have to be traveling away from the general area considered your "tax home" for at least 1 workday to deduct your costs as travel expenses.

Different Types of Travel Expenses

Transportation

Additionally, if you use your car to get around on a business trip, you can claim mileage on your taxes and deduct it at the standard mileage rate. According to the IRS, the mileage rate for 2020 is 57.5 cents per mile that you drive for business-related usage.

Airfare

Accommodations and Lodging

Food

Miscellaneous Travel Expenses

• Shipping and handling costs for luggage or work-related materials to and from your destination
• Laundry
• Business-related communication (business calls or faxing, for example)
• Tips paid for work-related expenses
• Other necessary costs related to business travel

What Isn't Considered a Travel Expense?

You can't deduct any travel expenses that aren't business-related, which includes personal expenses completed while traveling for business. You also can't deduct travel expenses that are superfluous or excessive, such as luxury purchases. If your family travels with you on a work trip, their expenses don't count as your travel expenses.

When you have business-related expenses in your home city, they may or may be deductible. However, they aren't considered travel expenses.

Knowing what counts as a travel expense will help you understand what you can and can't deduct when doing your taxes. Pair that knowledge with common small business tax credits, and common small business tax mistakes, and you'll be able to maximize your refund and avoid being audited.

Every successful business is built on a successful plan. And one of the most important aspects of your plan will be the marketing strategy. After all, if people don’t know about your business, they will never be able to pay for your goods or services.

As you strategize your marketing efforts, you’ll need to pay close attention to your budget. There are diverse ways to approach your marketing budget. One popular method is to let the expenses lead the charge. As you list out key marketing executions, you’ll keep a running tally of the cost. Then you take the total cost and adjust your budget to accommodate your chosen marketing efforts. This aggressive approach makes marketing a priority, sometimes at the expense of other aspects of your business.

An alternative way to approach your budget is by earmarking a percentage of your revenue for marketing. This approach is a more reactive way of handling your efforts, as your strategy will need to be reigned in any time revenue decreases. But this method helps contain costs and ensures that the other areas of your budget won’t be infringed upon by marketing expenses.

Regardless of your chosen budgeting approach, it’s important to understand the various expenses you should include in your budget.

“Marketing expenses are an important consideration for all businesses because marketing is a primary business function that creates a customer for the business,” explains a business finance report from the Houston Chronicle. “It's critical for business owners to understand the significance of marketing expenses, its accounting definition, marketing expense management, and tax treatment.”

This guide will introduce you to many of the common marketing expenses that small businesses deal with. It’s not intended to be a comprehensive list. Each business has unique elements and needs.

Marketing Expense Examples:

• Online presence: You can’t operate a successful business these days without a website. Plan on expenses related to buying a domain, designing your website, and paying for hosting. You’ll also want to have a blog and multiple social media accounts. These channels are relatively inexpensive to create and operate, but there will be expenses related to the creation of content.
• Digital tools and technology: The costs associated with digital tools typically have a great ROI because of the precious time the tools can save you. But you’ll still need to account for expenses such as email platforms, project management software, accounting software, or customer relationship management systems.
• Research: The best marketing is always guided by data. Plan on expenses related to surveys, industry reports, focus groups, product testing, or magazine subscriptions. You can minimize these expenses by leaning to the digital side, where tools like SurveyMonkey allow you to conduct high-impact research without the hefty price tag.
• Advertising: The best advertising campaigns involve multiple media channels. Examples of possible expenses include display banners, TV spots, radio ads, direct mail, and print ads.
• Printed materials: This category can be a catchall for various printed pieces, such as business cards, catalogs, brochures, coupons, vouchers, or posters. Depending on your industry and location, these expenses vary significantly.
• Samples or gifts: One of the best ways to help someone understand the benefits of a product or service is to let them experience it firsthand. Consider allocating money for samples and gifts to lure customers to your business or reward their loyalty.
• Sponsorships: This approach allows you to connect your business with others in a way that attracts new customers. Affiliation is a powerful tool, so it could be worth the cost.
• Equipment: Accomplishing your marketing goals may require additional equipment. For example, if you’re taking product photos, you might want to invest in a quality camera. Or you might need tablets to use for presentations at trade shows or networking events.
• Promotional items: If this is a marketing strategy you plan to use, there will be expenses related to bags, shirts, pens, electronics, sunglasses, stress balls, or whatever else you plan to give away.
• Events: This category includes expenses such as flights, ground transportation, hotels, meals, registration fees, booth displays, and other necessary supplies. Depending on your industry, this category could potentially be a major component of your marketing budget.
• Public relations: You might want to enlist the help of communications experts in your marketing. A talented public relations expert comes at a premium cost, but if you use their skills to the fullest advantage, it can be worth it.

The word "audit" elicits fear, not unlike that of the Salem witch trials. Although punishments are less brutal (thank goodness), the government isn't afraid to set fire to your business. If the IRS decides to audit your company, your financials need to be in tip-top condition to avoid hefty penalties.

Audits aren't just about investigating your integrity—even honest small business owners can fail. These financial investigations care little about ignorance and lots about meticulous records.

But fear not! There are simple steps you can take now to guarantee your small business passes with flying colors. Although an audit is very unlikely (about a 0.5% chance), it's best to be prepared for the worst.

By taking these 6 steps now, you'll be ready if the IRS knocks on your business's door.

1. Keep Detailed Financial Records

Occasionally, the IRS audits businesses randomly. But more often than not, the IRS decides to audit businesses with suspicious tax returns. To make sure you're honest and can prove it, keep detailed records of all your income, expenses, losses, and deductions.

The law requires you to keep these records for up to 3 years, but most tax professionals advise you to keep it for at least 7. 

So, if the IRS has questions, you'll have easy-to-access answers.

While you're at it, make sure to separate your personal expenses from your business expenses. Keep a separate bank account and credit card for your business. This practice will help you identify the appropriate transactions without any confusion.

2. Create Digital Copies of Your Receipts

If you're using cloud bookkeeping software as we’ve suggested, uploading and organizing your receipts is simple. If you claimed deductions, you're going to need itemized receipts to prove your purchase. No expense is too small—make it a habit to create a digital copy of every business receipt.

3. Lean on Your Accountant and Bookkeeper

Get in touch with the accountant or tax professional who performed your tax return. They should help compile the appropriate documents. Also, make sure your bookkeeper is present, too. They'll be able to speak to the bookkeeping processes and help accelerate the audit.

Don't have an accountant or bookkeeper? Consider hiring one. Keeping track of your financial records is hard work—even if you're never audited, they'll be well worth the price. And if the IRS does decide to audit you, you'll be forever grateful you have help to lean on.

4. Be Transparent About Your Contractors

More small businesses are saving money by hiring freelance contractors instead of full-time employees. This approach saves the company from paying for benefits, paid-time-off, and other employee perks. But high expenses on multiple independent contractors trigger the IRS.

That doesn't mean you shouldn't use freelancers—it just means you need to make sure they qualify as independent contractors and not employees. The term you give them isn't as important as the 3 factors the IRS considers: Behavioral Control, Financial Control, and Relationship of the Parties. Review the IRS's guidelines to avoid misclassifying and receiving hefty penalties. 

If you pay any contractor more than $600, you need to file a 1099 with the IRS. Make sure every contractor sends you a signed W-9 before you pay them. 

5. Stay Up-to-Date on Regulations

Laws change, state and local taxes vary, and auditing rigor fluctuates. But the IRS won't let you use that as an excuse. It's your duty to stay current on all regulations and taxes. Stay compliant by verifying your tax settings are always up-to-date on the software you're using.

6. Hit the Deadlines

Not too late, not too early—just right. File your tax return too early, and you'll give the IRS plenty of time to review it meticulously. Even if you're 100% honest, it's best not to give the IRS extra time to dig for errors.

It's more important, though, to avoid late filings. If you fail to file on time (or fail to file at all), the eye of the IRS will find you. Imagine Sauron’s eye finding Frodo whenever he puts on the One Ring—it’s just like that. Make sure to meet all of your important deadlines—not just the yearly tax return.

An IRS Audit Isn't the End of the World

Usually. While an audit can be a major pain in the backside, it's not an indictment. It's an investigation. 

By following these 6 steps, you can avoid IRS suspicion and stay on your merry way. If the IRS does audit your business, whether at random or due to suspicious behavior, you'll be ready to survive unscathed. Don't wait for the unwelcome letter from the IRS to land in your mailbox—start audit-proofing your business today.  

Whether you call it freelancing, entrepreneurship, or hustling, there's no denying that the non-traditional work is more prevalent now than ever as more people turn side gigs into flourishing careers.

Independent contractors, who encompass everything from Uber drivers to freelance graphic designers, are taking the job market by storm. Over the first 15 years of the 2000s, 1099-MISC forms⁠—the tax forms issued to independent contractors⁠— increased by about 22%, while the number of W-2 forms⁠—tax forms issued to traditional employees⁠—decreased by 3.5%, according to George Mason University's Mercatus Center. 

Here's why today's economy is the perfect incubator for a nation of self-employed, side gig hustlers, whether we like it or not.

The Difference Between 1099 and W-2 Work

1099 and W-2 are two different forms used to report income to the IRS when filing taxes. A 1099 form is used by independent contractors, while a W-2 is used by full-time employees. However, the distinction between the two types of work is far greater than how taxes get paid.

Being a traditional W-2 employee means your taxes are taken out of your paycheck and you're provided with a list of benefits, ranging from healthcare to retirement contributions. Companies are required to pay W-2 employees a minimum wage, provide everything an employee needs to do their job, and reimburse most business expenses.

As a 1099 employee, you don't receive the same protections and benefits. You're responsible for filing your own taxes, covering business-related expenses, and obtaining the equipment and supplies needed to do your job, although these expenses can be written off on your taxes.

The Perks of the 1099 Lifestyle

If you're working as an independent contractor, your client can't dictate your work schedule or force you to come into the office or attend meetings on a full-time basis. Your job is to complete your work by the agreed-upon deadline, but how you get there is up to you. If you want to take a random Wednesday off or hire someone to help you complete your work, you can. If you need to spend a day working for a different client, you can do that as well. How you spend your time is none of their business.

As a W2 employee, your employer has a lot more leverage over you. They can tell you what hours to work, where to work, and how to complete your work, and they also have some power over what you do outside of work. For example, employers can preclude W-2 employees from doing other work on the side, running their own blogs, podcasts, and social media platforms, or even partaking in activities outside of work that make the company look bad.

Why Millennials and 1099 Work Are the Perfect Match

Millennials aren't the only generation participating in 1099 work. In fact, contract work has been around for decades in the form of farmworkers, construction workers, musicians, and more.

However, culturally speaking, younger generations are a large driving force in new labor trends. While often stereotyped as lazy and entitled, millennials are marked less by a lack of ambition and more by a shift in priorities away from superficial achievements and toward personal and collective fulfillment. According to Deloitte's 2019 Global Millennial Survey, the most common ambition amongst millennials is to see the world, and millennials as a whole are more interested in positively impacting their communities and the world than they are in having children and starting families. 

Pair this with a prevalent sense of skepticism toward business and a tendency to change jobs more frequently than previous generations, and it's easy to see why the freedom and self-direction of 1099 work might be attractive to this generation of folks born between 1981 and 1996.

Financial Crises and Technological Advancement at the Forefront of This New Economy

The technology is certainly here to support growth in the self-employment sector. Thanks to the internet, remote work is quickly becoming the norm. The ability to work for any company from anywhere in the world lends itself nicely to freelancing. Social media has given everyone the ability to create their own platform and profit from it. Sharing economy apps that allow anyone with a smartphone to partake in ridesharing, home-sharing, meal delivery, and more have also facilitated the growth of the gig economy.

There are other profound reasons that self-employment and the "gig economy" have caught on so rapidly in recent years. For one, events like September 11th and the 2008–2009 financial crisis shocked our nation, and along with impending crises like climate change and terrorism, have paved the way for a generation that feels very uncertain about the future. While the major benefit of full-time employment used to be a feeling of stability and security, no job is a sure thing in today's economy.

The Increase in 1099 Work Isn't Completely By Choice

While millennials might seem made for self-employment, not all young folks are happy participants in the gig economy. According to the Mercatus Center report, the most likely culprit for the increase in 1099 work isn't the increased availability of side gigs. Rather, side gigs have become more available because more people are demanding them⁠—often out of necessity.

The report explains that there's been a sharp decline in the job creation rate since the early 2000s, with the biggest drop taking place around the financial crisis. Pair difficulty finding traditional employment with stagnant wages, and it's not hard to understand why more folks are turning toward freelancing and side gigs to fill gaps of unemployment and underemployment. Previous decades proved that the single-earner household is no longer financially tenable for most families⁠. Perhaps what we're seeing now is that holding a single job is no longer financially tenable for most individuals.

Many industries have taken huge hits to business in the past couple of decades. In the search for bigger profit margins, firing W-2 employees and replacing them with 1099 contractors can be a huge help. Companies are no longer on the line for shelling out benefits and covering their half of payroll taxes. Businesses can also avoid paying salaries to a full staff during slow periods by using contractors and doling out work only when need it⁠—and the budget to pay for it.

1099 Work Can Lead to a Better Work-Life Balance

Because you're able to set your own rates as a contractor, 1099 workers who demand their worth often find they're able to make far more money freelancing than they ever could in traditional employment. Higher hourly rates also allow freelancers to make up for increased tax rates and having to cover their own health insurance and plan for retirement as a small business owner. Freelancers can demand higher rates because they're much cheaper for companies than a full-time employee.

Self-employed individuals also have the flexibility to pursue new opportunities as they wish, giving them full control over the direction of their careers. When it comes to personal fulfillment, the ability to set your own hours, and maybe even work remotely, is for many a priceless benefit that greatly outweighs 401(k) matching.

For folks who prefer the stability of working full-time or can't afford to surrender employer-sponsored benefits, the rise of 1099 work can be frustrating and scary. However, those with personalities and goals that align with self-employment can reap great benefits from this new economy. 

The information provided in this post does not, and is not intended to, constitute tax advice; instead, all information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their tax professional to obtain advice with respect to any particular tax matter.

Does the thought of bookkeeping fill you with uncontainable excitement? Probably not. What about money in the bank to make your business ambitions a reality? Now we're talking. 

It turns out that boring ol' bookkeeping and business capital have more in common than you might think. You need cash to grow your business, but as you well know, money doesn't grow on trees. You're going to need to secure top-notch financing to get ample capital to invest in your business. 

But before lenders start doling out the big bucks, they're going to want to make sure you're a safe, reliable applicant. They'll look at your credit score, cash flow history, financial projections, business plans, and more. And how do you keep these critical financing factors in tip-top condition? With fundamental bookkeeping habits, of course.

You can't qualify for business financing without the proper financial documentation. And even if you do have your finances neatly organized in a silver 3-ring binder, the numbers need to prove to lenders that you and your business are a worthwhile risk. Fortunately, bookkeeping not only helps document and organize your finances, but it arms you with the information necessary to improve your business's health and qualify for financing. 

Win-win.

There's no need to make bookkeeping more complicated than it needs to be. With just a few basic, routine habits, you can stay on top of your books each month with little-to-no hassle. Follow these bookkeeping best practices, and you'll be well on your way to bigger, better financing for your business.

1. Adopt Cloud Bookkeeping Software

First, it's 2019—ditch the spreadsheets and ledgers and get cloud bookkeeping software. Tech can do practically all of the tedious bookkeeping for you. Okay, not everything, but a bookkeeping platform like Sunrise can automate your invoicing, expense tracking, income categorization, and financial reports. That adds up to a lot of saved time.

Software doesn't replace the need for professional accounting guidance, but it does simplify the minutia of running a business. It'll help you get your finances in order and keep them in order. Plus, by using a cloud-based solution, you'll always have real-time financial data on your business's performance—no need to wait until end-of-week or end-of-month reconciliations.

Make sure your bookkeeping tool also has high-quality document management features. The right tool will streamline the process of managing financial documents like invoices, daily expenses, payables, receivables, and receipts. The software should also allow you to easily share your files with your accountant—no copy/paste or screenshots necessary. Less time bookkeeping means more time focusing on growing your business.

2. Track All of Your Expenses

Before you start paying, tracking, and reporting, you need to separate your personal and business expenses. While it might be convenient to just swipe one piece of plastic in your life, this practice will ultimately make tracking your expenses a nightmare.

Open a separate bank account and get a business credit card. By separating your accounts, you won't have to waste hours sifting through your expenses at the end of the month. You'll always know how much your business has spent and what the money has been used to purchase.

Now that you've separated your accounts, it's time to track all of your expenses. Business lunches, printer ink, travel expenses—everything. There are a ton of small business tax deductions you can capitalize on, and every penny counts.

3. Create Cash Flow Forecasts

This process is where bookkeeping turns from entries to insights. Yes, bookkeeping is a necessary evil for legal purposes, taxes, and audits, but it also informs and drives your business strategy.

With detailed financial records, you'll be better able to forecast your cash flow. With accurate cash flow forecasts, you'll always be prepared to make the best financial decisions for your business. These insights will help you avoid dangerous amounts of debt and leverage your existing capital to its utmost potential. Coming full circle—these informed business decisions will improve your financial health and help you qualify for financing.

4. Pay Your Taxes

Remember when we talked about separating your personal and business expenses? Yeah, tax time is when you really reap the rewards of that upfront decision.

Income tax, payroll tax, unemployment tax, excise tax, sales tax, property tax...that's a lot of taxes. Don't let the fees creep up on you come tax season.

If you've been consistent and organized with your bookkeeping, tax time will be a breeze. If you're using a solution like Sunrise, you can simply invite your accountant to access your transactions and financial reports —they’ll take care of the rest. Easy peasy.

5. Regularly Review Your Financial Records

Financial reports won't do you much good if you never use them. Make it a habit to frequently analyze your statements. Keyword: analyze. Don't just glance at them or give them a quick read—dive into the details. These are the same reports lenders will be looking at to decide if you qualify for financing. You should be looking for the same red and green flags they're trying to discover.

To some degree, you should check your financial records every day. At the end of each day, make sure the money in the bank matches the receipts. By monitoring your transactions daily, you'll be able to catch errors, fraud, and unexpected fees before it's too late.

While it's important to track day-to-day transactions, you also need to review the big picture with month-to-month statements. The profit and loss statement, balance sheet, and cash flow statement are your most important financial reports. These telling financial documents will give you quick and deep insights into your business's health. They're also the first thing lenders and investors will look at when examining your business's potential.

Make sure to block off time in advance to take care of your bookkeeping tasks. You're likely extremely busy, and many things might seem immediately more important than tracking your day-to-day finances. Don't slip into the procrastination trap—set aside time at the end of each day and month to reconcile your books.

6. Remember the Rule of GIGO

Remember: "garbage in, garbage out." GIGO. The reward of your consistent bookkeeping is equal to the quality time and thought you put in every day and month. It's not enough to just go through the motions and check bookkeeping off your to-do list each day. You need to ensure the quality and legitimacy of your entries if you ever want your reports to benefit you.

Come tax time or a surprise audit, your financials won't do you much good if you got sloppy for a month or two here or there. Saving minutes now will cost you hours later (and likely a more substantial fee from your CPA, too).

7. Consider Hiring a Professional

Numbers and entries might not be your thing, and that's okay. As an entrepreneur, you have to wear a lot of hats—fortunately, you can hand off your bookkeeping hat with little hassle.

If you know you don't have the bandwidth or the slightest desire to deal with day-to-day bookkeeping, consider hiring a professional bookkeeper. Bookkeepers can help track your transactions, reconcile your books, explain your financial reports, and answer all your number-related questions.

You can hand the entire bookkeeping process over to a professional and get back to doing what you do best—growing your business.

Excellence Is Not an Act—It's a Habit

At first, you might approach each of these bookkeeping habits as tasks. You may need to add reminders on your phone and calendar to nudge you to get the job done. Some days you may have other pressing obligations, and other days you might simply forget. That's fine and dandy—it's all part of the process.

Over time, however, diligence to these tasks will evolve from act to habit. You'll find the value in bookkeeping and make it a priority—not a burden. That's when you'll achieve true bookkeeping excellence. And that's when your bookkeeping labors will really start to pay off.

Better Books Lead to Better Financing

With your books in order, you're ready to pursue your financing ambitions with confidence. Armed with financial insights, you'll know exactly how much cash you need and how much you can afford.

At a moment's notice, you'll be ready to apply for whatever financing you need. Your awareness of your business finances will help you determine if you even need financing—and if you do, which loan makes the most sense. 

For example, you may discover your cash flow is taking a hit because your clients are dilly-dallying on their payments. If that's the case, you may want to consider accounts receivable financing instead of a short term loan. Or maybe you find that you consistently receive more sales during November, leading you to acquire a business line of credit to hire seasonal help.

Better bookkeeping practices lead to better financing—it's that simple. Once you receive that lofty sum of cash with oh-so reasonable terms, you'll realize all the tracking, reconciliations, and reports were all worth it. Get after it, entrepreneur. Your next loan is just a handful of bookkeeping habits away.

Knowledge is power. Ignorance is weakness.

As an entrepreneur, it's critical to arm yourself with the knowledge necessary to make sound business decisions. Without that knowledge, you'll always be at a substantial disadvantage—as if owning and operating a small business wasn't hard enough already.

There's no better way to learn about your business than through financial reports. These reports tell a story about your business—from the past to the present and to the future. Sometimes it's a sad story of conflict and loss. Other times, it's a Cinderella story of triumph born from struggle. For your business to experience its happily-ever-after, it's critical you learn where your business currently stands and where it's headed.

We know you're busy with owning, operating, and growing your business. It's a lot—we get it. However, effectively running a business is impossible without financial reports. They're an unnegotiable part of managing a successful company.

To help preserve your precious time, we've narrowed down the reports you need to analyze. No matter if your business is big or small, whether you go solo with bookkeeping software or you have an entire accounting team, you need to know these 3 financial reports like the back of your hand. These are the reports you should be creating, reviewing, and taking action on month-to-month to keep your business moving in the right direction.

1. Profit and Loss Statement (P&L)

Ideally, the goal is for your revenue to exceed your expenses (a.k.a. a profit). However, that's not always the case, but you won't know you're incurring losses if you don't frequently generate and check this financial report. If you're profitable month-to-month, then great job. Now look for ways to optimize and grow. If you're incurring losses each month, take a step back and start looking for areas to make changes. You’ll likely be able to find areas for improvement in your cash flow statement (more on that later).

2. Balance Sheet

By comparing balance sheets from month-to-month and year-to-year, you can identify trends and make more informed financial decisions. You'll also be able to monitor the key financial ratios that lenders use to determine your company's health: liquidity and leverage.

3. Cash Flow Statement

One of the best ways to use your cash flow statement is to predict future cash flow. Data-backed estimates will help you budget and make important financial decisions. If your cash flow isn't looking so hot, it may be a sign you need to acquire temporary financing to fill the gaps. Or perhaps you need to cut some of your expenses.

Using These 3 Financial Reports

In the best-case scenario, your reports will verify that your business is operating smoothly and on a healthy growth trajectory. At worst, you'll discover significant weaknesses to act on and improve. Uncovering these vulnerabilities early on will give you time to make strategic business decisions to recoup and recover.

That's why we encourage you to generate and look over these reports every month. If you wait 3–4 months to analyze your financials, you may not be able to dig yourself out of a deep, deep hole.

If you're a small business owner with enough on your plate already, take a load off your shoulders with bookkeeping software. Software like Lendio's can automatically create and deliver these financial reports—meaning fewer spreadsheets and calculators for you. That also means less time crunching numbers and more time doing what you do best—running the business.

You're busy, so don't spend hours drowning in numbers. Stick to these fundamental reports. Armed with the financial knowledge these reports provide, you'll have the know-how and insights necessary to propel your business forward.

Do you want to take your small business to the next level? If so, you need to make every financial investment into your business count. 

Successful business owners combine due diligence, a deep understanding of business processes, and keen foresight to turn a small business into a profitable one. One key financial principle that business owners must understand is ROI. 

What is ROI? 

ROI stands for return on investment. With any investment, whether it is time or money, there is going to be a financial gain, loss, or break-even point. ROI is the analysis of this financial performance in the business world.

Here’s an example: you purchase $500 in stocks today. If you were to sell those stocks tomorrow for $1,500, you would have a gain—a positive return on your investment. If you were to sell those stocks tomorrow for $100, you would have a loss.

Why Does ROI Matter? 

Having the foresight to determine if an investment will result in a positive return allows you to make financial decisions that will ultimately help you successfully grow your business. 

ROI is especially important when it comes to business financing. If you’re borrowing money, you want to make sure the growth opportunity will generate enough revenue to justify the cost of the loan. Otherwise, you could find yourself drowning in debt. 

Calculating ROI can also come in handy if you’re trying to determine which investment makes the most sense for your bottom line. Here are some examples of how you might put an injection of capital to use: 

• Replacing outdated equipment or machinery
• Redesigning your website to take your brick-and-mortar shop online 
• Hiring a marketing manager to kickstart new marketing and advertising initiatives
• Opening a second location on the opposite side of town
• Diversifying your product line and services to sell more to existing customers and attract new customers 
• Franchising your small business to expand it nationally—or even globally
• Consolidating several forms of high-interest business debt under a new loan 

The investment path you choose depends on many factors. It depends on where your business stands now and what it has to offer. It depends on the market and future trends. It depends on how far you want your business to grow. And it depends on you, your team, and your combined strengths and weaknesses.

With all of these factors in mind, you will need to decide which of the above paths is most likely to create a positive ROI. 

How to Calculate ROI 

Calculating ROI can be a bit tricky if you start overthinking it. InvestingAnswers offers a simple ROI formula that small businesses can use to determine the return on investment for most ventures.

ROI = (Net Profit ÷ Cost of Initial Investment) x 100

Here are a couple of examples of this formula in action based on a few of the small business expansion ideas mentioned earlier. Please note that these are just examples of the ROI formula in use and not typical results of the specified investments.  

Scenario #1

Your business invests in a complete redesign of your website. The total cost of investment is $15,000, which includes a custom e-commerce website design and quality photos of your entire product line. 

After the first month, your new e-commerce store generates a net profit of $3,000. This net profit is calculated after deducting monthly website hosting fees, product shipping and handling costs, and additional costs associated with your new e-commerce store.

The ROI of your website redesign, for the first month alone, is ($3,000 ÷  $15,000) x 100 = 20%. 

Scenario #2 

Your business invests in a new marketing manager. The total cost of investment is $52,000 for the first year based on the new hire's salary, benefits, and initial training. 

After the first year, new marketing initiatives generate a net profit of $120,000. This net profit is calculated after deducting advertising fees, monthly marketing software fees, and additional marketing spend.

The ROI of your marketing manager for the first year is ($120,000 ÷  $52,000) x 100 = 231%. 

Scenario #3

Your business invests in opening a second location. The total cost of investment is $225,000, which includes permits, POS equipment, inventory, payroll, and the retail space itself. 

After the first year, the net profit for your new boutique is $85,000. This net profit is calculated after deducting standard operating costs and taxes. 

The ROI of your second location for the first year is ($85,000 ÷ $225,000) x 100 = 38%. 

What is a Good ROI?

For most scenarios, any positive return is considered a good return on investment. If you want your business to have exponential growth, you will want to aim for the highest ROI possible. 

You’ll want to increase your sales without increasing your spend. You can employ several tactics alongside major investments and business expansions to increase your overall revenue. 

Focus on providing excellent customer service and remind all of your customers to review your business online. Your business rankings in search engines will steadily improve as it receives a larger quantity of positive rankings, leading to exposure among your ideal customers. Also, be sure to respond to your reviews, as that can help improve your local rankings, according to Google.  

Train all of your employees to upsell. If you can increase the average dollar amount of each sale, you will increase your business's overall revenue without having to increase marketing or advertising spend to attract new customers to your store. 

For small businesses with online stores, look for ways to improve online conversions. Place opt-in forms on every page of your website for visitors to share their email address to receive future sales promotions. Utilize A/B testing tools, like the one provided by Google Analytics, to test your product sales pages and determine which changes result in the highest conversion rates. 

Once you understand ROI, you’ll be able to make informed financial decisions for your small business that will lead to its success. After thorough research and some careful calculations, you may find that the path that seems riskiest may have the potential to generate the highest return on investment. And that will be the best scenario for taking your business to the next level. 

Yes, credit card interest is deductible for businesses. But with recent changes, how much you can deduct has changed.

Is business credit card interest deductible for small businesses?

Credit cards are a great tool that many businesses use to keep themselves running. If you don’t pay your balances in full at the end of each billing cycle, you’ll probably end up paying some interest.

The long answer to whether or not you can deduct credit card interest on your taxes depends on the situation. Let's take a quick look at when you can write off your business credit card interest:

• Most (if not all) business-related credit card interest. Interest you pay on business credit cards is deductible when used for business-related expenses. The interest deduction also applies when the debt is directly related to your business operations, even if it's a cash advance. As long as it went toward operating your business, you can write it off.
• Different forms of interest within the paid year. You can only deduct qualified interest during the year in which you incurred the debt or made the payments.
• Your business credit card's annual fee. Some business credit cards come with an annual fee. If you have one of these credit cards, then you can write off the annual fee on your taxes.

Remember to keep your credit card statements and receipts to smooth the process of filing your small business tax returns. The IRS provides a host of resources to help you understand this process better, but in some cases, it may be a good idea to hire a qualified professional to do your taxes.

When is your business credit card interest not tax deductible?

One reason to opt for a business credit card rather than using a personal credit card for your business is that interest on a personal credit card isn’t usually tax deductible. Unless you can separate expenses from personal ones on your personal credit card, it can be hard to write off the interest.

Additionally, how much interest you can deduct has changed with the Tax Cuts and Jobs Act. When you file your taxes, businesses can only deduct up to 30% of their interest payments.

How to make claiming credit card interest easier.

Claiming credit card interest on your taxes might sound difficult. Here are some steps to make it easier for you:

• Don’t use a personal credit card for business purposes. Maintain separate credit card accounts for easy accounting.
• See if you can find an automatic way of tracking your credit card expenses and the interest that you pay on them.
• Hire a professional accountant or tax lawyer who will evaluate your specific business situation and give you a clear picture of how you can take full advantage of your small business tax deductions.

Small business tax deductions can add up to a significant amount of money back in your pocket each year. Remember that hiring a professional can help you maximize your tax return so that you can continue investing in your business.