Year end is a busy time of year for finance & accounting staff. It is that time of the year where we draw a line in the sand and take a gauge on how a business performed over the last 12 months. Most businesses run their fiscal year in sync with the calendar year, and this common date creates a hectic period for finance & accounting staff in the midst of America’s annual holiday extravaganza. In spite of the flurry of fun activities, we do need to take a moment and think about the items we need to work on before the year ends.
Listed below are many of the items you need to think through and have a plan to manage before the year ends, as some of these items are date sensitive.
Visit with you finance & accounting team (Fractional CFO/Bookkeeping Service) & review your profit & loss statement and your balance sheet. It is necessary for you to fully understand your current financial position. You must recognize where you stand today, before year’s end, in order make an accurate evaluation of your standing on December 31. Estimating where you will end the year, you can then take any necessary adjustments to ensure you get there. When meeting with your F&A Team, ask them for their view on the items that remain outstanding to ensure the books are recorded accurately. For example, you may be behind on reconciliations or booking depreciation entries, and knowing this information will allow you to create a year-end task list to help get the year closed accurately and on a timely basis.
Know your tax strategy. Work with your CPA firm and ask them what steps you need to take before year’s end to ensure you limit the amount of taxes that you pay. The tax strategies you will employ may differ based on the tax status of your business. For example, if you company is taxed like a C-Corp, any dividends that are paid are subject to double taxation, so you need to employ strategies to avoid this double taxation. The general strategy in this is case is for the business to pay out excess gains in the form of salary and bonuses instead of dividends, and these payments must be made before the end of the year.
Understand depreciation and be ready to book it. For those who do not know, “Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property.” This provision is actually an annual allowance for the wear and tear, deterioration, or obsolescence of the business-related property.
Most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible property, such as patents, copyrights, and computer software is depreciable. (See IRS Overview HERE).
A current list of depreciable business property needs to be kept and updated yearly, along with a depreciation schedule for each asset. Keeping abreast of your tangible property makes the year end closeout process more convenient, along with saving tax dollars.
Use the tax code to invest in your business. The IRS offers bonus depreciation plans that allow for qualified property to be depreciated up to 50% in the first year. A small business can use the 50% depreciation bonus to buy needed equipment and write off half the value in the first year. This benefit can be a powerful method to help small business leaders invest in their companies and build a growth engine.
Ensure your vendor files are in order. Don’t wait to collect all the information necessary to issue any required 1099s to your vendors. Avoid a last-minute scramble and obtain that information at the time of purchase. The due date for issuing 1099s is January 31st.
Buy employee benefits. Work with your benefits providers to ensure the benefits you provide to your employees have been renewed before year’s end and that your employees have completed the enrollment process. Offering benefits to your employees can help be a differentiator for your business and help to foster employee loyalty and build a cohesive, resilient company culture.
Perform a risk management evaluation. Risk management is a perpetual task to manage, but year-end often affords small business leaders the reports necessary to quantify certain risks faced by their business. With these year-end reports an assessment of any changes in risk to your business can be made. Items to pay particular attention to are A/R balances and how they compare to prior periods, i.e., are client payments slowing down and credit risk increasing? Maybe there are new market risks to review as well. Year-end affords the opportunity to reflect on risk and how to manage it and every small business leader should take advantage of this opportunity.
Create a budget for next year & create a forecast to help manage it. This is a theme that I have emphasized periodically this year. Budgeting and forecasting is the principal key to business success and a mandatory part of the goal-setting process for any thriving company. The forecast helps the business owner understand if he or she is on track to achieve both short- and longer-term goals.
Evaluate performance for this year & share the message with your team. When you evaluate the performance of your business for the year, share this information with your staff. You need to inform your team as to the results of their hard work and enable them to take ownership of the results. Sharing information and fostering empowerment helps to build a stronger team and more open culture where your employees can work together and reach the goals you set.
Set goals for the next year and share with your team. Goal setting is an important part of life, is equally important in running a business. Setting goals for your company and sharing those goals with your staff can be an important tool to help empower them to achieve those targets. Encouraging your workforce to participate in setting goals gives them more of a stake in the in the accomplishment of those goals.
A Fractional CFO can be a key resource to help small business leaders manage their year-end. CFO Shield in the business of helping small business to understand the market place, create the strategic plan, execute that plan, and achieve the prosperity that is your goal. We leverage our offerings and enable small businesses to solve problems and share in the same economies of scale that larger companies enjoy. We have the experience needed to create custom solutions to help small business owners better manage their back office and help them formulate strategies to adequately manage working capital, thereby ensuring stability and prosperity.