The holiday season is upon us and that means we are only days away from ringing in the new year. Cheers to a successful year and making it through 2021! But don’t take a step back just yet. Year-end is an ideal time to set the business up for a less stressful tax year. Below are six tasks related to your business finances that you should tackle before ringing in the new year.
1. Set a budget
Preparing for the new year wouldn’t be complete without setting a budget. In order to accurately develop a budget for the year, you will want to take a look at your financial statements to examine your revenue, expenses, and current assets. Reports can be pulled quickly from your cloud-based accounting system. From the dashboard, you can pull monthly and yearly reports.
In order to make money, you will need to spend money and the expenses will vary depending on the nature of the business. For instance, if you keep inventory on hand, your budget will need to account for that. When setting a budget, take inventory of what the business already has, additional staff that may need to be brought on, and any large purchases that need to be made (such as new technology, furniture, or even a new office space). Keep in mind, budgets can and should be evaluated throughout the year, especially if there is sudden growth or unexpected expenses. In most cases, business expenses will work to your advantage as a tax deduction.
2. Set sales goals
When pulling reports for budgeting, be sure to keep them on hand in order to set sales goals. Based on previous sales figures, goals, and growth, the company should have a foundation in order to set realistic, achievable sales goals. Setting sales goals can sometimes be a guessing game if you’re unsure how to use your financial reports to create a projection. Working with an outsourced CFO can provide the financial expertise needed to create projections, as well as set sales goals and budgets. Outsourced CFOs are a great option for smaller businesses, those just launching, or those in need of temporary assistance as they don’t come along with the financial burden of a full-time hire. They provide services on a part-time, and interim basis, and can accommodate a range of budgets.
3. Update technology to manage your business finances
There’s no better time than the present to find areas of opportunity. As a business owner, consider how you can increase productivity. What are ways to reduce expenses? Are there any processes that could be automated? Investing in technology can be one of the best ways to better the business, and give you back valuable time. Cloud-based accounting apps can automate mundane, repetitive tasks such as expense reporting, payroll taxes, and data entry. Adopting cloud-based accounting apps gives business owners a real-time picture into their business from anywhere at any time. Make it your new year’s resolution to save time and money going into 2022 by integrating cloud-based accounting solutions into your back office.
4. Year-end tax planning
Take the time at year-end to speak with your CPA about a proactive tax strategy. A year-end tax planning meeting will give you a tax projection so you know what’s coming in the spring. From there, together with your CPA you can estimate future taxes owed, and make a plan that includes tax savings opportunities. If you’re projecting a substantially successful year, you may want to consider large purchases for the company, such as equipment upgrades or other deductible expenses that will not only benefit the business and its employees, but also the taxes. A word of caution: if you’re making large purchases with the goal of reducing your tax bill, be sure to consult with your CPA and understand the allowable deduction.
5. Clean up the books
If this isn’t something that’s done on a monthly basis, make sure to clean up the books at year-end. The business books will be better prepared for tax season, and you won’t be left scrambling to get everything in order or paying a hefty fee for data clean-up work. Review uncleared checks, any discrepancies, and ensure all liabilities have been taken care of. If you’re self-employed, make sure all estimated taxes have been paid; if you have employees, double check that all payroll taxes have been remitted.
Going into the new year, make it a priority to lock down the books every month. Xero has a great feature that allows the business owner to set a new password for each month’s books, reducing the risk of internal control issues and theft. By doing this monthly, you will save time at year-end, ensure accuracy, and gain control of your books. If you’re struggling to find the time for bookkeeping every month, send us a message. We offer business bookkeeping services and can help you migrate to the cloud to allow for virtual, secure collaboration.
6. Prepare to send 1099s
If your business uses the services of contract employees or freelancers, don’t let 1099s slip through the cracks. Before the clock strikes twelve, make sure you have collected all necessary information in order to send out 1099s in January. For businesses with lots of 1099s, we offer 1099 preparation services to fit your business needs and budget. If you’re unable to send out a 1099 to the contractor and IRS, you will be at risk of fines and penalties for non-compliance.
A successful new year starts now. Preparation is key in order to be able to take advantage of valuable tax deductions, and have a clear picture of your business finances. If you need assistance with any of the above topics, send us a message. We are more than happy to help your business succeed in the new year.