Really confused about profit and loss

[Tantastic86]

Hey everyone can someone clarify something for me as I am a sole trader and doing my own accounts.

One thing I'm struggling to get my head around is this-

Say I make £5000, but my total expenditure(training & products) came to £10,000 = a technical £5000 loss

Would I then be submitting that I had LOST 5000 on the tax return and to tax credits. Or do you say made 5000 and spent 10000, and they get back to you?

This isn't applicable to me till next year, but I've been wondering this as I don't expect to be I profit in my first year

 

[squidgernetball]

You declare a loss of £5000, so it shows as -£5000 in your return.

Vicki x

 

[Tantastic86]

Thanks Vicki! I thought so but my bf whose a farmer has a really complex accounting system and got me all confused!lol

Thanks again xx

 

[lynn amber]

Yes I agree it is done as a loss, this can happen a lot when starting up a business, I have had 2 loss years one though illness and one though moving my business, and don't make your accounts more complicated than they need to be, what comes in and what goes out there's not much more to it than that for a sole trader in the hair and beauty industry, other industrys can be a lot more complicated because they may have to wait to get paid etc

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[laurakate]

Is it common to make a loss? I've paid for my training and kit etc and expect to have weeks where I don't make much and I'm worried that when I tell the taxman this they'll think I'm lying. Please tell me I'm just being paranoid and irrational.

 

[Pinkbunny28]

Is it common to make a loss? I've paid for my training and kit etc and expect to have weeks where I don't make much and I'm worried that when I tell the taxman this they'll think I'm lying. Please tell me I'm just being paranoid and irrational.

You are being paranoid and irrational it is very common to make a loss in your first year, usually you break even in your second year and start making a profit in your 3rd year x

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[laurakate]

You are being paranoid and irrational it is very common to make a loss in your first year, usually you break even in your second year and start making a profit in your 3rd year x

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Thankyouuuu! I keep worrying that I'll be totally honest with hmrc and they'll not believe how little money I say I've earned when I tell them the truth. I was worrying that I'd stick out like a sore thumb! I've spent 100s on preparing to open (products etc) even though I'll feel like a boss if I make 50 a week!

 

[willowrose]

You are being paranoid and irrational it is very common to make a loss in your first year, usually you break even in your second year and start making a profit in your 3rd year x

I’m sorry to be the bearer of gloomy news but that’s not entirely so.

Businesses that open with large initial investments & operating costs such as: premises rent, staff, utilities, renovation expenditure, sizeable stock holdings, loan repayments & business rates etc might well not break even in the first year.

However, it would be pretty dire if a mobile or home based sole trader who had outlaid 2/3k start up (generous figure as many outlay less) was not seeing profit within a year.

These 2 business models are not comparable & thus the standard of 3rd year profit is not applicable to a minimally invested sole trader.

In my opinion someone operating under the sole trader circumstances above should be extremely worried if they don’t make a profit in the first year.

 

[lynn amber]

I’m sorry to be the bearer of gloomy news but that’s not entirely so.

Businesses that open with large initial investments & operating costs such as: premises rent, staff, utilities, renovation expenditure, sizeable stock holdings, loan repayments & business rates etc might well not break even in the first year.

However, it would be pretty dire if a mobile or home based sole trader who had outlaid 2/3k start up (generous figure as many outlay less) was not seeing profit within a year.

These 2 business models are not comparable & thus the standard of 3rd year profit is not applicable to a minimally invested sole trader.

In my opinion someone operating under the sole trader circumstances above should be extremely worried if they don’t make a profit in the first year.

Sorry I disagree, I moved my business into my home last year I was already self employed and had all my stock and equipment but I still spent an excess of 8k doing it converting the space, plumbing, electrics,furniture,journey,advertising, new price lists/business cards, the list go's on .

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[Baggybear]

...... However, it would be pretty dire if a mobile or home based sole trader who had outlaid 2/3k start up (generous figure as many outlay less) was not seeing profit within a year.

These 2 business models are not comparable & thus the standard of 3rd year profit is not applicable to a minimally invested sole trader.

In my opinion someone operating under the sole trader circumstances above should be extremely worried if they don’t make a profit in the first year.

I think you are sort of right in saying that those with a smaller inital outlay can mean that the business breaks even quicker BUT if that smaller outlay is also matched with only a few hours worked (many only work part time for many a reason) then making a loss in the first year would be normal & expected.

Nobody should be worried that the HMRC will think they are lying about their profit/loss. The HMRC will expect you to keep accurate records (your income & all outgoings) and if they have any concerns they will audit you to see if your giving them accurate information.

There are many people who start up small businesses with small initial outlay but then they continue to train in new treatments and buy the kits & products needed for these new treatments, therefore they don't make a profit in the first, second or third year etc... they are ok with this as they see the training as a long term investment.

Nobody should be thinking they should break even or earn a profit in any set time, all our businessess are different as are our personal lives & circumstances. It would be great if you did manage to break even or make a profit in the first year but don't feel bad if that doesn't happen, every business is different.

 

[laurakate]

I’m sorry to be the bearer of gloomy news but that’s not entirely so.

Businesses that open with large initial investments & operating costs such as: premises rent, staff, utilities, renovation expenditure, sizeable stock holdings, loan repayments & business rates etc might well not break even in the first year.

However, it would be pretty dire if a mobile or home based sole trader who had outlaid 2/3k start up (generous figure as many outlay less) was not seeing profit within a year.

These 2 business models are not comparable & thus the standard of 3rd year profit is not applicable to a minimally invested sole trader.

In my opinion someone operating under the sole trader circumstances above should be extremely worried if they don’t make a profit in the first year.

Worried in terms of the money I'm earning or worried in terms of if the tax man will believe I'm working at a loss?

I should hope that I can cope with working at a loss because that's a risk that I'm consenting to in going self employed. I would be prepared to do stints of employment to make more money.

My main worry is that if I make so little money will the hmrc believe me. I'm my own worst enemy because having had a string of part time minimum wage jobs post uni I really don't believe that there's much earnable money floating around out there when I'm having a bad day :$

 

[lynn amber]

Well said buggy bear

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[lynn amber]

Worried in terms of the money I'm earning or worried in terms of if the tax man will believe I'm working at a loss?

I should hope that I can cope with working at a loss because that's a risk that I'm consenting to in going self employed. I would be prepared to do stints of employment to make more money.

My main worry is that if I make so little money will the hmrc believe me. I'm my own worst enemy because having had a string of part time minimum wage jobs post uni I really don't believe that there's much earnable money floating around out there when I'm having a bad day :$

Don't worry please, just concentrate on you business as a hole

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[willowrose]

Sorry I disagree, I moved my business into my home last year I was already self employed and had all my stock and equipment but I still spent an excess of 8k doing it converting the space, plumbing, electrics,furniture,journey,advertising, new price lists/business cards, the list go's on .

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8k to launch a business is not very much. It would be classified as minimal financial investment.

I think if you remove yourself from the equation & consider averages on SG then you would be aware that most spend in the region I quoted. If not less.

Diversion aside the point I was raising is quite an important one. No minimally invested business should think it "normal" to not be in profit until year 3.

 

[Tantastic86]

Well I personally have only started the business with the intention of being a part time business, so with training and products costing so much, I don't expect to be in profit this year.
X

 

[laurakate]

I think you are sort of right in saying that those with a smaller inital outlay can mean that the business breaks even quicker BUT if that smaller outlay is also matched with only a few hours worked (many only work part time for many a reason) then making a loss in the first year would be normal & expected.

Nobody should be worried that the HMRC will think they are lying about their profit/loss. The HMRC will expect you to keep accurate records (your income & all outgoings) and if they have any concerns they will audit you to see if your giving them accurate information.

There are many people who start up small businesses with small initial outlay but then they continue to train in new treatments and buy the kits & products needed for these new treatments, therefore they don't make a profit in the first, second or third year etc... they are ok with this as they see the training as a long term investment.

Nobody should be thinking they should break even or earn a profit in any set time, all our businessess are different as are our personal lives & circumstances. It would be great if you did manage to break even or make a profit in the first year but don't feel bad if that doesn't happen, every business is different.

Thank you I love this post so much because I can get so overwhelmed into feeling that I'm not approaching self employment correctly but when you mention that everyone is different that is really reassuring to me because it's easy to fall into the trap of thinking that everyone else is flowing along nicely whilst I'm playing a let's pretend game (it really is how I feel on a bad day).

Naturally I need to make some money but I'm not doing this because I think it's the best way to make the most money. My reasons for self employment is because I reached a point where working for other people long term made me feel that I was stagnating and I didn't like some of the politics either. Working for myself means that I can widen my skills set by working with a broader treatment menu of my own choosing and that I can ensure that im properly trained in all of the products I am using. This is because I want to teach. I've done salons and spas and I want to balance my cv to show that I can do more than that before training to teach. As a result I'm not doing this for the money. ..I see it as a short term challenge in the hope of it helping me to gain the opportunity I seek in the long run.

Thanks

 

[willowrose]

Worried in terms of the money I'm earning or worried in terms of if the tax man will believe I'm working at a loss?

I should hope that I can cope with working at a loss because that's a risk that I'm consenting to in going self employed. I would be prepared to do stints of employment to make more money.

My main worry is that if I make so little money will the hmrc believe me. I'm my own worst enemy because having had a string of part time minimum wage jobs post uni I really don't believe that there's much earnable money floating around out there when I'm having a bad day :$

Worried in terms of the viability of one's business.

HMRC will believe you. Lots of people spend year after year making little or no profit.

I wasn't really responding to you so don't panic. It strikes me from posts I've read of yours that you're astute, hold business savvy & will slowly but surely prosper :hug:

 

[BannerPenguin]

Some businesses start out with 100's of thousands of debt if buying equipment etc. At the end of the day it's your money to lose and HMRC will probably only start asking questions if your posting a 1million pound turnover with 0 profit lol.

 

[lynn amber]

8k to launch a business is not very much. It would be classified as minimal financial investment.

I think if you remove yourself from the equation & consider averages on SG then you would be aware that most spend in the region I quoted. If not less.

Diversion aside the point I was raising is quite an important one. No minimally invested business should think it "normal" to not be in profit until year 3.

I think this was a substantial amount considering this was not to start my business only move it, if I took into account all my stock ,equipment and resent training you can double that figure,
But as said it's all relevant to your own circumstance 8k might not mean much to you but I suppose that depend where you are coming from

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[willowrose]

I think this was a substantial amount considering this was not to start my business only move it, if I took into account all my stock ,equipment and resent training you can double that figure,
But as said it's all relevant to your own circumstance 8k might not mean much to you but I suppose that depend where you are coming from

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I'm not belittling your investment. On a personal level 8k is a lot to me also. But I'm not talking on a personal level. I am speaking about the financial health of businesses & investment levels. In that context 8k is a small sum & should be quickly recouped.

Thousands of businesses fail yearly. It is very common on here to interpret grounded realism as negativity & "being mean".

It's all very well to say "don't worry, go at your own pace, profit will come one day". But presumably most people have dependents/mortgages/rent & want to be self sufficient. There is a limit to how long one should continue with a business that isn't profitable.

I responded as I thought it unwise to encourage people, no one particular person, that it was normal to not see profit until year 3. That business standard is not appropriate or intended for sole trader businesses with minimal investment. A business created on these terms should see a profit very quickly.