It’s that time again and the holidays are fast approaching. It’s a time of excitement, family, get togethers, and…finances! For most, year-end is the time when we start thinking about taxes and our financial situation for the year. December 31st is too late, but if you’re reading this now, you have a good chance to get things in order to make tax time and other year-end tasks less stressful. Keep reading to see how to get ready!
Catch Up Your Bookkeeping
If you have some a back log of bookkeeping to do, now is the time to get caught up and ready for January. Bookkeeping can be as simple as a spreadsheet if you’re a sole proprietor, or if you have LLC or Corporation, then you really should use software like Xero. Don’t spend hours and hours on this. Technology is come along away in the past 5 years so chances are “there’s an app for that”!
Having your books caught up will tell you how much income and expenses you have for the year. Once you know that, then you’ll have a good idea of what your tax bill is going to look like.
Taxes
If you’re self-employed chanced are that you should be paying estimated tax payments–which are basically tax prepayments. Reviewing how much you’ve paid in, and making any necessary catch up payments will help ensure you don’t have a large tax bill and will help you avoid any pre-payment penalties.
Additionally, you should review your net income to ensure you aren’t getting caught with a large unexpected tax bill. Reviewing this will help you know what to expect when it’s time to file taxes. And if you have extra cash, you can even pay some or all of your tax liability before you file your return.
Retirement Accounts
Saving for retirement has almost become a cliché term. But did you know most business owners aren’t taking advantage of having their company pay themselves for retirement? It’s one of the great tax planning tools that a business owner can use! The company (which you own) pays into a retirement account for you. So it’s like getting a double benefit! Every business owner should be doing this.
There are many different options for retirement accounts. Whether it’s a 401K, SEP, or SIMPLE IRA, find the one that works for you and get it started.
Re-evaluate Your Pricing & Costs
End of year is a great time to look at your pricing and costs. It’s also a great time to review your Gross Profit % and make sure you’re charging enough for your products/services, or adjust your Cost of Goods Sold (COGS). Keep in mind that generally speaking, your COGS should be no more than 30% of your revenue. If it is, you could be bleeding cash and you may soon run out. If you run out of cash, guess what? The jig is up and you may be out of business. In order to do this you’ll need to of course have your bookkeeping caught up so do that first, and then review these numbers.
…your COGS should be no more than 30% of your revenue
Review Your Systems and Processes
Finally, review your internal systems and processes. Or, maybe this is the time where you commit to write them down. Mapping out your systems and processes does a few things for you:
- You can discover inefficiencies that you may have never seen. Writing something down has the amazing effect of providing objectivity! You can use paper or online tools like Google Docs or Evernote to do this. That way, if you ever have staff taking over certain jobs, they’ll know what to do.
- It also prepares you to be able to hire staff and delegate tasks or jobs. Doing this allows you to take on more of a managerial/strategy role and be less of a technician. As business owners, we should all be moving away from the technical side of the business so we can work on the vision and growing the company.
As business owners we should all be moving away from the technical side of the business so we can work on the vision and growing the company
This isn’t meant to be an exhaustive list by any means, but it should get you started. If you need help, just ask! We’ve helped countless businesses do these things and we can offer down-to-earth advice that will make doing this, easy!