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This chapter explains how the self-employed individual can prepare a basic profit and loss statement, which is one of the first steps prior to doing your taxes. This chapter is valuable for new sole proprietors as well. If this is the first year you are self-employed, then this chapter is a fantastic aid.

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Chapter 11:
Workingman’s Blues

A large percentage of late tax filers have been or are currently self-employed. This entire chapter is devoted to you. You will probably need my help here. Please make use of my expertise in this area as I have helped hundreds in your situation make sense of their tax messes. One hundred years ago you could just be good at something, some trade or craft, and you could be self-employed. You could just be a craftsperson, such as a fine woodworker or metalworker. Just do your thing and count your money at the end of the day. Now, you can’t just be a craftsperson. Now you have to be a business person. It is a different deal.

HOW THE GAME IS PLAYED TODAY
To make it really simple, you could say that a business is like a three-legged stool. One leg is production, one leg is marketing and the third leg is finance. You need all three legs to be solid in order to make a good seat. Otherwise, it won’t hold your weight. In my experience, I have met only the rare self-employed person who is excellent or competent in production and marketing and finance. Usually, the entrepreneur is good at two out of the three. Naturally an entrepreneur would be good at production, that’s why he or she is self-employed. And chances are that the entrepreneur is at least adequate at marketing or selling, because otherwise there would be no work! But, finance. Ah, that’s often the weakest leg. It feels like the least productive, the most expensive, the least fulfilling. And here we find the Achille’s heel of most self-employed people: the avoidance of financial management, including tax management.

Production and marketing are expansive functions. Finance is a contractive function. It is hard for a vibrant and energetic person to take hours out of their work schedule each week to sit down, shut up and add up the income and expenses. That’s the truth and it always gets put off for one reason or another. A good one is, “I really need to make more money this week.” Another good excuse: “I plan on sitting down next Saturday and getting all my books straight.” This one works pretty well, too, “My wife said that in a few weeks she will organize all my records.” Two years later, the tax returns are still not filed. I have heard all the reasons and I understand them, too.