September and October seem to be a swift slide right into the holiday season. If you're a busy small business owner, you may not have realized that the end of the year is coming up quickly. Instead of spending late December in the rush of the season, start planning ahead to get your financial statements and taxes organized now.
Here are Small Business Best Practices: End-of-Year Financials
Update & Organize Your Books
Closing out the end of the year is much easier if your financial books are in order. Make sure you've entered all of your expenses for the year so far, if you haven't already. Enter any payments to contractors and vendors and schedule to pay what's owed. Record all income and ensure that payments have been reconciled and checks have been deposited. Review any outstanding balances owed by clients and follow-up with a collections letter. It's important to know if and when you can expect payments so you can send unpaid accounts to collections or write them off as bad debts. Review your profit and loss statements, especially as they compare to previous years. Combined with your estimated tax payments, you could have a rough estimate of what you may owe in end-of-year taxes with this information.
Make Purchases & Donations
One way to reduce your tax burden is to purchase office equipment, improve your home office, upgrade software or any other business expenses that can be written off. Contribute to your retirement account or start one to also help reduce your income and tax burden.
If your business regularly donates to charities during the holidays, it's the perfect time to choose your non-profit. Remember that the 2017 tax reform law made some changes with regards to business donations to charity, depending on your type of business. Consult your tax advisor for more information. If you don't have a tax advisor or CPA, now is a great time to find one.
This may also be a great time to consider seasonal gifts for your clients. You might even prompt your client to finally pay their invoices with a little holiday kindness.
Make Next Year Even Better
With a head start on end-of-year, you can begin your plan for next year. If this process was too much of an undertaking, you may need to get your finances organized or invest in new accounting software. Use the information you've gathered for this year to make changes or improvements. For instance, your accounts receivable turnover ratio and average collection period will reveal how effective you are at setting credit policies and collecting on your sales invoices. If your accounts receivable is regularly too high or reveals slow payments, you may need an A/R clean up to help build up your business cash flow.
These best practices will help relieve the stress of the holiday season so the small business owner can focus less on financials and more on family and friends. With a good head start and planning, December and January can be the time of taking your business to the next level.