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Microbakery Bookkeeping, Pricing and Tax Prep Made Simple | Episode 63

  • Feb 24, 2025
  • 6 min read

Updated: 3 days ago

Listen on Apple Podcasts


Most of us would rather bake than open a spreadsheet. I get it. Bread is fun and bank feeds are not.


The trouble is that the money side is the part that tells you whether you have a business or a very expensive hobby. Megan Morales of Purple Elephant Group said it better than I ever have, and I have not stopped thinking about it since: you are not an expensive hobby.


Megan owned a bakery before she became a bookkeeper, so she knows exactly what our books look like. She came back on the show to answer the questions you all sent in about tax prep, banking, waste, wholesale and paying your kids. Here is everything worth writing down.


Three things that make tax season easier

Megan's list is short and none of it is complicated.

  • Get on cloud based accounting software. Connect it to your business bank account and it pulls transactions in almost daily, so you can see your income and expenses without reconstructing last January from memory.

  • Keep your cash receipts. Card transactions live in the software. Cash purchases do not, so those paper receipts matter.

  • Talk to a bookkeeper and a tax preparer before you are in a panic. Monthly check ins beat one frantic April.

Megan likes QuickBooks for the invoicing, payments and syncing. Wave is a lower cost option, free at the entry level with some limits. Expect around $30 to $35 a month, and think about that number the way I do. If the software saves me two or three hours a month, I would rather spend those hours baking or with my family.


Two warnings from her that will save you real pain:

  • Do not use the Square syncing feature with QuickBooks or Wave. Megan has had to delete client accounts and start over because of it. Take your Square payouts into your business checking and let the bank feed do the work.

  • Check what your pre-order app actually reports. Some itemize every single customer with no monthly summary of revenue, tips and fees, which means you enter it all by hand. My Simply Bread order report breaks out fees and products cleanly, so that is the one I use.


The deduction most new bakers do not know about

If you started your business in the last tax year, you may be able to deduct up to $5,000 in startup costs, as long as your total startup spending stayed under about $50,000.


That includes your website, marketing, print materials and equipment. Ask your tax preparer whether you qualify, because this one is easy to miss and it is real money.


A bookkeeper and an accountant are two different people

This trips up almost everyone.

  • A bookkeeper handles the day to day and the month to month. They categorize transactions, keep your cash flow clear, and hand you reports that tell you where you stand. Think of them as an extension of your team.

  • An accountant works on the big picture. Taxes, deductions, financial strategy, planning for an expansion or a big purchase.

If you look at your sales and think "I made all this money, so where did it go," that is your sign to talk to a bookkeeper. Many accountants hire bookkeepers to do the categorizing anyway.


What to do about unsold bread

Every baker asks this one, and the short answer surprised me. Unsold product is not a tax write off. You cannot claim revenue you never earned, and the ingredients are already sitting in your expenses under cost of goods.


What it is instead is a production signal, and it deserves its own simple spreadsheet. If you are losing $250 a week to bread nobody bought, you are either baking too much or you need another place to sell it. Megan's framing stuck with me. If you have to make 50 to run the batch, go find the outlet for the other 25 instead of throwing them away.


Donations, meals and the ones bakers forget

  • Donations get recorded at full retail price. If the basket you gave to the school auction would have sold for $50, that is what you record, categorized under charitable contributions in your chart of accounts.

  • Meals get categorized by type. Employee meals, travel meals, a working lunch and a holiday party are all deducted at different rates, so keep them in separate categories and let your accountant apply the percentages.

  • Your own coffee and snack at a Saturday market counts too. I had genuinely never thought about that one.


Separate your money, then pay yourself on purpose

If your business and personal money are still in one account, this is the first thing to fix. It makes tax time miserable, and if you are an LLC, personal transactions running through the business account can undo the liability protection you set it up for.


Once you are separated, here is how the money should move:

  • Take an owner's draw. Do not spend straight out of the business account. Transfer money over to personal on a regular schedule, weekly or monthly, based on your profit. Owner's draw is profit and it is taxable at the end of the year, so that money is yours either way.

  • Open a business savings account, ideally one that earns interest. Megan likes Relay for this.

  • Move about 15% of your income into savings every month for taxes. If you collect sales tax, that money goes straight there too. It is not your money, it belongs to the state and the IRS, and the easiest way to not spend it is to never see it sitting in checking.


If you sell wholesale, get someone to check your margin

This is the section for those of you a few years in with accounts and standing orders. Megan sees the same mistake over and over. Small bakers offer a wholesale discount that is far too deep, and it puts them at a disadvantage on their highest volume work. Wholesale should still pay you well. The shop sets its own retail price, and your job is to make sure your number leaves you with a healthy margin after ingredients, labor and packaging.


Invoice through your accounting software rather than a third party app when you can, so the invoice, the payment, the fee and the sales tax all live in one place. And do account for your fees. If you are paying $700 a month in card and app fees, that comes straight out of your profit.


You can pay your kids, and it is worth doing

If your business is owned only by you, or by you and your spouse, you can put your kids on payroll. If an outside partner owns any part of it, you cannot.

  • They have to do real work. Labeling, packaging, helping at markets.

  • Pay them a fair wage for the task, and keep the hours and the jobs age appropriate. No teenagers on the bread slicer.

  • They get a W-2, and neither the business nor the child pays payroll taxes on those wages.

  • Their wages can go into an IRA or a savings account, which may open up further deductions. Ask your accountant about that piece.

While we are here: every bakery needs insurance, kids or no kids. Tell your insurer the whole truth about what you bake, where you bake it, what equipment you run and who helps you.


The one habit Megan wants every baker to build

Two hours a month with your numbers. That is it.


Open your books, look at every line, and make sure you know what each charge is. That habit catches fraud, double charges and the subscription you forgot you were paying, and it tells you whether you can afford the new oven or need to raise your prices.


And on prices, Megan can tell within thirty minutes of looking at someone's books whether they need to charge more. Do not price off what the baker across town charges, because you have no idea what their costs are. Calculate the cost of your ingredients, your labor, your packaging, your overhead and your fees, then set your price from that. If your busy season is coming, raise your prices before it starts, not in the middle of it.


Final thoughts

None of this has to happen in one afternoon. Open the business savings account this week. Put two hours on the calendar for the first of next month. Pull one wholesale invoice and check what you actually kept.


You are running a business, and the numbers are just information about how it is doing. Once you look at them regularly, they stop being scary and start being useful.


Cheering you on,


Caroline


Keep going

If this got you fired up about your numbers, start with these.


Links to things you might like!


 
 
 

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