3 Easy Steps for Martial Arts Schools to Turn Year-End Investments into A Tax Relief
"As part of our focus on small businesses this month, we’re sharing a few tips with martial arts school owners so that they can minimize their tax burden while investing in their school’s future."
If you’re a more seasoned school owner, you probably already know that the average small club is expected to make a loss in its first 5 years of existence. This expectation is rooted in two things: that you will still be building your student base, and that you will be making significant capital investments as you establish your operation.
Despite the struggle that many businesses in the industry have encountered this year, there will still be those that are turning profits. If you fall into this category, let’s start by saying congratulations, you’ve achieved something big despite all the forces against you this year.
More importantly, we want to help you avoid a massive tax bill. And the way to do that is to minimize your profit by making investments into your business before the end of December.
Here’s a crash course of how taxes work: You are taxed on your NET profits for the year, so that would be your profits after all expenses, including capital. If you re-invest profits during the year (before December 31), and do it in such a way that your expenses offset up all the profits then you’ve cracked the code! You now have no net profits, which means that you don’t have to pay any taxes on them.
Here's How You Do It
The team at 2020 Armor has got decades of experience when it comes to successfully operating martial arts schools. So what we’re sharing is a tried-and-tested formula that has been applied by our own team and hundreds of our colleagues and friends across the United States. This three step process goes a little something like this:
- Work the numbers: are you making a profit or loss?
- Determine how much of your profit you'll reinvest (if you're turning a profit).
- Make a wishlist and trim it down to investments that will reward you in the long term
Step 1: Work the Numbers
The obvious starting point is for you to determine whether you’re looking to make a profit or loss this fiscal year. Depending on the complexity of your operation, you’re probably already tracking revenue, cost of sales and overhead expenses using one of the following tools:
a. A spreadsheet in Excel or Google Sheets (there’s plenty of templates out there, our favorite free source is https://excelaccountingtemplate.com/free-accounting-templates/)
b. Enterprise management software that includes an accounting component or dedicated accounting software (the most popular include QuickBooks or Xero)
c. An accounting professional that does this for you (run a search for local bookkeepers in your area if this is the route you’d rather take)
Step 2: Decide How Much of Your Profit You'll Reinvest
Now you’ll make it to this part if you’ve turned a profit. How much of this profit you’d like to invest is entirely up to you. However, our recommendation is that you use this opportunity to offset all your profits for a couple of reasons. First of all, most retailers (including 2020 Armor) run their biggest deals throughout the late-November to mid-December holiday season, so you’ll benefit from discounts you wouldn’t get during the remainder of the year.
The second consideration you’ll need to make is that in most instances, your December would have started with a major sales drive where you would sell equipment and advanced membership packages for the next six or so months. The rationale behind is that:
- You would grow your earnings (in fact, some schools make up to 40% of their revenue through these events as, just like it is for retailers, the purchase intent is at its peak during the Holiday shopping rush).
- You would sell off used or old equipment to students or other clubs.
- You would fit this additional revenue into your club's growth strategy, which brings us to the final step:
Step 3: Create an Investment Wishlist and Refine It
Start big! Think of some of the coolest new equipment and apparel that your students are their parents have been raving about all year. Add in the essentials that wear and tear easily and that you actually need to replace on a year basis (kicking shields and such), and so on.
Then you’ll want to research prices and assign a dollar amount to your wishlist investments. A simple spreadsheet or a handwritten list will do the trick. Just make sure you’re adding things up properly. See if you’ve exceeded the budget you identified in step 2.
If you have exceeded your budget, then you’re left with the simple task of trimming the list down until you arrive at the right number. The smarter way to do this is to start by eliminating the purchases that don’t have a clear return-on-investment (ROI) associated with them. For instance, an investment in 2020 Armor Vests is backed by a guarantee that you’ll triple your money back within 3 months, with returns that can last up to years if you follow our ART (attract, retain and thrive) framework. Contact us today if you’re interested in unlocking the benefits of 2020 Armor to school owners and students.
And as a bonus, we’ll be going live on Facebook with our Founder & CEO Ali Ghafour, along with our Head of Sales and school owner, Scott Granger to answer your questions and to share even more insights with you on making the right moves for your business before the year ends.
Update: a replay of the webinar can be watched here: