The beginning of a new year is when small business owners plan for what lies ahead and consider lessons learned from looking backward. Especially important is the imminent matter of addressing income tax for the year that recently ended. You should, however, already have a solid understanding of your tax situation by having relied on accountant advice throughout the year. Unfortunately, achieving this standard can be frustrated by lax recordkeeping. Therefore, a new year is ideal for implementing improvements.
Financial Records Precision
Dig deeply into your business financial statements of the past year. Don’t merely glance at the bottom line on the income statement. Scrutinize every number. Assure that each asset, liability and expense amount makes sense. If anything isn’t clear, find the source of questionable items.
Keeping mounds of receipts, invoices, and bank statements is certainly a hassle. Moreover, the flaws in this system are magnified by having to locate a past detail in a pile of papers. Investing in a good scanner for saving electronic copies of everything is a far superior method. If you already have electronic files, make improvements to document labeling and folder organization.
The most crucial vow for a new year is assuring that all transactions are recorded in a timely way. Details needed for accurate bookkeeping should be assembled immediately after events occur. Collecting information for tracking every business activity without delay assures that financial records are complete and accurate.
Business Planning Mastery
Planning for a new year relies heavily on data from the recent past. You don’t want to blindly make decisions for the future. The planning process is therefore delayed if you’re waiting for several weeks (or even worse, a few months) to get necessary financial statements.
Forecasting the year ahead requires knowing your present working capital and cash flow. Your financial capabilities inform you about how much you can spend. The business balance sheet shows cash available and unpaid bills if you’ve kept your records up to date. This report also conveys existing debt so you can identify possible additional borrowing capacity without burdening the company.
A cash flow statement or cash basis income statement illustrates where business revenue has been going. With this tool, you can plan for new spending initiatives. This, of course, means having a sufficiently positive cash flow. If you don’t have enough cash flow for spending on your business growth strategy, the income statement tells you the recent amounts spent in each expenditure category. This guides you toward potential areas to cut back in.
Tax reduction strategies are also identified from timely and accurate financial statements. For example, your accountant can advise you about retirement plans. The contributions are tax-deductible, and the amounts going to your personal plan account are essentially payments to your future self.
Business health insurance plans can also save money. In fact, many types of benefit plans are allowed under the tax rules as business expenses. But creating and administering them comes with a cost. Determining whether advantages outweigh the costs necessitates careful analysis of business financial circumstances. So everything comes back to organized files and mastery of financial statements.