Year-end tips to whip your finances into shape

Colorado was crowned the healthiest state in the country by Gallup. We do a great job of taking care of ourselves by managing diet and exercise. But what about our businesses? Do we apply the same discipline and nurturing when it comes to keeping our business finances in shape?

Now is a great time to start. The fourth quarter of the fiscal year allows time to be proactive for the current tax year as well as time to look ahead to strategize for next year.

Prepare for a meeting with your tax accountant before the end of the year. There is a dual purpose to this valuable appointment. Discuss any potential tax planning activities that can be implemented before the year wraps up. Also, estimate any expected tax liabilities to prevent last-minute, stressful surprises.

The tax professional’s feedback will be based on the information you provide, so make sure you are providing quality data. Be sure your business financials are complete, reconciled, and correctly recorded.  The financials should be complete at least through third quarter and should include a profit and loss statement and a balance sheet. Also include any year-to-date payroll information for the owner.

Topics that can be included in year-end planning should include retirement plan contributions, fixed asset purchases, charitable giving, and re-classing any excess owner distributions to payroll (for S Corporation shareholders). Also, ask how the PPACA (Patient Protection and Affordable Care Act) might impact your business.

Independent contractor/employee issues are a hot audit topic for both federal and state agencies.  Decrease business risk by ensuring you have all necessary information to prepare Forms 1099. Possible recipients include landlords, attorneys, folks who received prizes or giveaways, and non-corporate vendors who provided services. Have a completed Form W-9 (available to download at on file and postmark Forms 1099-MISC to recipients by January 31. Postmark copies to the IRS by February 28. Mailing to the IRS by certified mail provides proof of mailing on time. Fourth quarter is a good time to review any missing Forms W-9.

To strategize for increased business health in the new year, start by looking back on the current year.  What can be done better?  Where have you been?  Where do you want to go?  Allocate free thinking time in fourth quarter to brainstorm a proactive action plan for the fresh year.

Ponder ways to avoid being swamped in the daily details. Wearing too many hats is the anchor for many small business owners. The shortsighted view that this is a cost-savings technique can have just the opposite result. Choose the business hat that fits you best and spend your day making the most of your expertise that can grow your business.

Make use of the knowledge of professional advisors, such as a tax professional, an attorney, a banker, a marketing consultant, and a bookkeeping accountant. Partner with specialists who develop a relationship with you and your business. A business will benefit from these interfaces throughout the year, not just brief annual visits.

Develop a road map for the new year by looking at the current year profit and loss report by month.  Make this the starting point for the fiscal year budget. Record your budget in your financial software and update it as you move through the year. A budget should flex as new information is discovered throughout the year.

Review your systems. As a business grows, there is a need for more checklists and system documentation for system control. Where can you refine last year’s systems?  What new technology should be researched that might bring cost-effective efficiencies? Cloud-based solutions could be an area to investigate.

Cultivate an attitude of a rule follower. Business law and tax rules are not always logical. Run your business as if you will be audited, and use experts to guide you. Recognize that you don’t know what you don’t know. This attitude will decrease your business risk and stress, and allow you to focus on growing your business.

Finally, listen to your financial reports. If properly recorded, they have a lot to tell you about your business.  Allocate a few minutes regularly to this task, and don’t avoid your balance sheet. Know your book cash balance. Know your receivables. Know what you owe. Understand how much revenue you have to bring in to cover your monthly overhead expenses. Recognize your gross profit margin percentage (the relationship of cost of goods/services sold to the revenue) and how it changes or stays the same over time.

Developing a healthier lifestyle requires discipline, commitment, and often a partnership with others.  Your business is no different. To get the new year off to a strong and successful start, the time to get your finances in shape is right now. 

Categories: Finance