The end of the year means a lot of things – feasts, holiday gift shopping, celebrations, a countdown of the most popular 100 songs of the year, and perhaps most important of all, preparing your small business for a strong finish to the year and a productive start to the new year. Working through the following 5 things will help to ensure your business is in its best possible financial shape by the end of the year.
Check Your Numbers
Before the year ends is the perfect time to look at your bookkeeping and figure out the financial health of your small business. It’s important to do it now so that you can make any adjustments before the year ends to keep your business running smoothly.
A great way to check out your business’s financial health is to review your business’s profit and loss statement, or create one if you haven’t already. A profit and loss statement, or income statement, sheds light on your projected income and expenses for a specific period. With this statement, you can easily see how your revenue is flowing and plan out the rest of your year.
You can also figure out your small business’s net profit by taking your gross profit (total sales – cost of goods sold) minus total operating expenses. If you have any extra money available, now is a good time to take steps so you can to take advantage of tax deductions. If there are any large purchases you may need for the upcoming year that you can make now, you can deduct those purchases as business expenses. You can also contribute to a charity to not only be a force for good, but to also improve your tax outlook for the upcoming tax season. Depending on fitness of your small business, you may want to consider deferring income until January 1, to shift income and the taxes that come with it, to the next year.
If your small business sells products, now is the time to take stock of your current inventory. To get a good sense of whether your inventory purchases are on track for the year, you can compare your current inventory to the inventory you had at the same time last year. You can also figure out the value of the items that haven’t sold and deduct the unsellable inventory from your taxes.
For those small businesses that don’t sell products, you can still take inventory of your work space, looking for broken items that may need to be replaced. You can also inventory the way your small business offers its service, for instance through a website, social media, or other advertising. This inventory will go a long ways towards helping you set your marketing goals for the year.
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Prepare for Tax Season by Reviewing Your Vendor List
As a small business owner, you likely work with a lot of different vendors that provide you with essential services. You can have each vendor or independent contractor fill out a W-9 Form so you have a record with correct information. While it’s best to have each independent contractor fill out the W-9 Form before you pay them, you can send the W-9 Form now to any independent contractors you are missing.
The W-9 Forms will help you easily issue your vendor and independent contractors 1099-MISC forms. Whenever you pay a vendor over $600 for the year, you are required to issue that vendor a Form 1099-Misc The independent contractors are required to report this income for federal and state tax purposes. There are penalties imposed on the small business owner for not correctly issuing 1099s, so getting everything ready now will not only save you time, but also money.
Set Up Your Small Business Budget for Next Year
One of the most important things you can do for the upcoming year is to plan out your budget and create a plan to make next year’s end of year review go smoothly. If you’ve ever created a budget for your personal finances, you already know that a budget is not only hard to figure out, but it’s also difficult to stick to. Even so, it’s important to do so you can create general guidelines to follow throughout the year.
Looking at your current fiscal landscape is the best place to start in creating your budget for the next year. You can get a sense of the revenues you had during the year and use that to project your revenue for the coming year.
Expenses are important to project, as well. You can break them into two categories, fixed and variable expenses to help make your budget more predictable. Fixed expenses are those expenses you can generally count on month to month, such as insurance, rent or mortgage, memberships, and loan payments. Variable expenses can change based on the amount of sales or transactions your business has each month, such as costs for raw materials.
Once you’ve projected your revenues and your expenses, you can anticipate what your profit might be. You can adjust your profit by reducing expenses or increasing revenue, or both, and by monitoring your budget each month, you can stay on track throughout the year to accomplish your goals.
Set Achievable Goals for a Successful Upcoming Year
With the start of the new year comes the inevitable New Year’s resolutions. But goal planning for your small business doesn’t have to be as mundane as resolving once again to organize your sock drawer. Business owners need to create goals that inspire forward movement and overall success. These goals should include both short term and long term goals.
Your business short term goals will lead into and fit with your overall long term goals. Your long term goal for the year may be to sell 500,000 products at $10.00 each, and that’s great, but without short term goals, such as product marketing, price point research and creating a positive brand image, it’s unlikely you’ll be able to reach that goal.
If you’re unsure where to start with your small business goal setting, thinking through four common business goals can get you started: updating your business plan so you can see where your business is and where you want it to go, increasing profits, using technology more efficiently, and of course, being more productive in your small business.
A less common, but incredibly important, long term goal for the overall financial health of a small business is to create a business emergency fund. An emergency fund protects your business from recession, natural disasters and other unexpected financial setbacks. Use your short term goals, such as saving a certain amount each month, to reach this long term goal.
Finish the year strong by looking at your profits and losses for the year so far, taking inventory, and getting your paperwork in order. With your budget and goals for the next year in place, you are setting your small business up for its best year yet.
Author: Theresa Sonnleitner
Theresa is a tax creative writer and editor with over 200 tax-related posts. She also enjoys writing about travel, fitness, food, and lifestyle.