As we approach the end of this year, many business owners are wondering how to end the year financially healthy. This begs the question, “What do smart business owners do near the end of each year?”
As a business owner, it can be tempting to glide through year-end looking exclusively forward. But don’t forget to check the rearview mirror!
To make it easy for you, I have created the following checklist to make sure you’re on track. You can use this checklist to get a financial snapshot of your business and assess what’s working before you move on. Even though many of us are ready to be done with 2020, reviewing your business over the past year will give you critical insight and direction for the new one.
#1 Review your goals and assess what’s working
Did you stick to your business plan? And if your business has a budget (I hope you do!), did you stick to that as well?
Since March, a lot of us have had to pivot our businesses to match our customers’ changing needs and comfort level with leaving the house.
One of the advantages of small business is that a few people can call the shots. It’s easier for a sole proprietor to add a new product line, online offering, or delivery service than for a larger corporation to react.
If you did change directions, consider whether or not this departure was a success. While you may have been forced to change your business model in ways you didn’t anticipate, there may be parts of your new normal that you want to continue.
You may not have all the answers yet, but now is the time to take a big-picture look at your business and where it is going. Knowing what you do about this past year, either amend your goals or plan your steps to return to what you do best.
Also, make sure you stay realistic here. In a year like 2020, it’s perfectly understandable if your plans and finances changed more than anticipated – and perhaps even multiple times. But even amidst continuous change, you can still evaluate those things that remained within your control. With respect to those decisions in particular, you probably have a sense of where you stayed the course and where you deviated. Tune into those for the most insight on this one.
#2 Get a clear picture of your profits and losses
Of course, in addition to vision and goals, a big part of assessing last year is financial viability. The new year is like a reset button for your finances. But first you have to understand what happened last year and learn from it.
Organize your vendor receipts if you haven’t already. Whether you use QuickBooks or an industry specific software, entries should be reconciled monthly throughout the year. Review any anomalies in your income statement. Just as you would make a personal budget, review your business expenses and whether they still work for you.
If you use equipment or a service provider no one likes, is it time to consider an alternative? Can you renegotiate a contract that’s been in place for years? Is that business association membership worth it?
Many products and services surely add value to your bottom line, and you should strive to keep those ones in place. After all, it’s not all about cost – it’s also about the benefit, and what profit lays in between. If the product or service is ultimately creating more money for the business than it takes away, it’s probably a keeper.
#3 Meet with your accountant to end the year financially healthy
Yes, before the end of the year. If you only check in with your accountant at tax time, circling with him or her earlier can be beneficial for several reasons.
Your accountant can give you an idea of where you stand with Uncle Sam at the end of year and also provide you with a list of any documents you still need to collect before you file in the Spring.
If you haven’t been setting aside enough money for the IRS, an accountant can help you calculate catch-up payments now to avoid penalties at tax time. They can also help you understand your payment schedule options, such as whether you will be able to pay in quarterly installments or if you need to plan on having the money when you file.
Your accountant can help you identify write offs, deductions, or credits that might offset your estimated taxes for the year. For example, if you are considering making a large investment in software or property soon, they can advise you on timing so you can maximize your tax savings. Depending on your state, depreciation on company property and vehicles, business events— even health insurance premiums—can be used to lower your tax bill. The Tax Cuts and Jobs Act (TCJA) in 2017 created new credits, including ones for businesses that offer paid family leave and for updating a building built before 1936. Constantly updated legislation means it pays to have someone current in tax law to search for particulars that could save your business money.
And of course, all of this helps your business end the year financially healthy.
#4 Consider your Entity
Your accountant may also have suggestions for your legal entity.
A lawyer should ultimately help you with this decision as your entity impacts not only your taxes, but also your personal liability, your paperwork requirements, and how you can raise and borrow money. Some entities are more costly to maintain.
There are many reasons you might choose to change your business entity over the years. If your company has expanded or you are looking at bringing in someone else as a partner, it may be a good time to explore whether your personal liability has reached a new threshold or you need to review your structure.
#5 Reach out to customers
While the direction of your business is up to you and other owners, use the end of the year to connect with your customers to better understand and protect what they value in your relationship. You may learn that their favorite thing about your business is not something you have focused on, or show you new opportunities.
At the very least, use the holidays to say thank you to your customers and others who helped your business grow this past year. After all, these are all the people who helped your business end the year financially healthy!
#6 Meet with your employees to end the year financially healthy
The best way to understand their career aspirations, interests and vision for the company is to talk to your people. Try to help an employee who you agree is ready to advance. You might find that someone in your office already has experience with (or would like to learn) a skill set your business needs.
Talk to individuals about what tasks need attention. This is a chance to make sure everyone is working with a clear understanding of the mission, and possibly address reasons why the business prioritizes what it does—not always obvious and sometimes frustrating at the lower levels.
This discussion can be part of an employee assessment, but make sure it is a two-way conversation. Be sure to identify what is working and acknowledge that person’s contribution.
If you do have plans to add headcount in the new year, let your people know why you decided to hire externally for that position and help you identify what traits and skills that person needs.
#7 Evaluate your social media presence and strategy
Social media is a requirement for today’s businesses, but you get to dictate how much of a focus it becomes.
A lot of followers doesn’t necessarily translate to a lot of sales. You may find that your business gets a bigger boost from customer engagement on your website, your email list, or other events that better connect to your base.
Others are hugely engaged in social media and constant reminders keep your product or service top of mind.
Each year, reassess where your customer hangs out online and what presence is most likely to reach them in a positive way. Then make a plan to show up there.
#8 Contribute to Your Community
Whether you get a big write off or not, I hope you will use your business to help someone out at the end of the year. Aside from being the right thing to do, it will help with many of your other end of year goals. It’s great advertising for your company, nurtures employee pride, solidifies your place in the community, and says thank you to those who have helped you reach your goals this year.
People increasingly want to do business with companies that give back. When your mission is beyond money, it’s obvious to others, and it creates more loyal customers.
In Conclusion: I hope your business ends this year financially healthy!
To wrap things up, it’s my highest hope that your business ends this year financially healthy. I know it’s been a rough year for many of us, some more than others, but rough all the same. For this exact reason, it’s extremely important to be planning for the next year in a smart way.
As the old saying goes, “early to bed, early to rise…” – The same is true for business finance. If you end the year financially healthy, then you’ll start the following year financially healthy, too, and stand a good chance of closing the following year in kind.