As we enter the new year, many small business owners focus on tax obligations and how they can reduce the current year’s taxes. However, after the year is over, little can be done to change a business’s tax situation. It is best to get a jump start on next year’s taxes with these helpful year-end small business tasks.
Proper tax planning occurs throughout the year with the help of a financial manager such as a Certified Public Accountant (CPA).
3 Important Year-End Tasks to Consider as a Small Business
Rather than focusing on taxes at the year-end, here are some forward-looking tasks small business owners can consider to help their tax situation and the financial management of their business.
1. Prepare a Budget
A budget is one of the most critical tools a small business owner can use to help ensure the success of their business. Big businesses routinely develop budgets, but small business owners often need to do so.
While small business owners may think they don’t have the time or resources to devote to budgeting, a budget doesn’t have to be complicated or time-consuming. Budgeting provides some outstanding benefits, including planning, direction, and control.
- Planning – allows the business owner to establish their goals.
- Direction – serves as a checklist of what is necessary to operate the business and what income, expense, cash, and capital requirements are needed to reach those goals.
- Control – provides a benchmark to compare the plan with what actually happened so variances can be identified and causes can be controlled or adapted to.
A CPA should assist the small business owner with the budget by providing templates and advice. If the business owner has a good set of books, then making the budget can be easy.
Most of the information needed is already within the books, ready for evaluation for the upcoming year.
2. Have a Proper Set of Books
Year-end is a great time to evaluate your bookkeeping and accounting system. A well-run business relies on correct numbers and reports that give owners the information they need to make sound business decisions.
Well-developed reports also provide information to users outside the business, such as lenders, investors, and the IRS.
The numbers from a good set of books can be used to manage the business and provide the information to plan for next year’s taxes and budget.
3. Find a Small Business Financial Manager
Big businesses often have a full-time Controller who manages their accounting system and consults with management on the business’s financial information.
A Small Business Financial Manager, such as a CPA, can provide the services of a Controller on a part-time or as-needed basis to small business owners for a fraction of the cost.
Bookkeeping and accounting produce many ways to use information, but four items are crucial to business success.
Many business owners think that cost control is the best way to maximize profit. While cost control is important, most businesses don’t succeed by saving money on paper clips.
A better cost analysis is to look at the difference between sales and the sales’ direct costs, such as labor or materials purchased to deliver the firm’s products or services. This is known as Gross Profit. If it costs more to produce the goods and services offered than it does to sell them, the business won’t be able to sustain itself.
Comparing the numbers to maximize Gross Profit is the most significant way a business can create profit. A proper set of books and guidance from a Small Business Financial Manager can provide this information.
Manage Cash Flow
Managing cash flow in a small business is all about balance. A company’s accounts receivable department lets their customers have time to pay them, while the books provide a way of knowing who owes the company and how long it takes them to deliver. The longer payments take, the less money is available to run the business.
If the business does accumulate cash, proper planning is needed to determine the necessary funds for future projects and operations and how to put those funds to work.
Legally Minimize Taxes
Proper tax planning happens during the year. By getting monthly financial statements and consulting a Small Business Financial Manager, making sure the business makes the most of its available deductions can ensure that they avoid penalties and there are no surprises when taxes are due.
As discussed above, budgeting is one of the best things a small business owner can do for their business. It’s so important it merits mentioning again.
Year-End Tasks for the New Year
Year-end isn’t just for getting ready for tax returns. Preparing a budget, getting the books in order, and finding a Small Business Financial Manager before the new year begins are some of the best year-end strategies for a small business owner.
A CPA specializing in Small Business Financial Management can help small businesses make the most of the new year.