As the year comes to a close, it's time many business owners start to prepare for the end of the year. To make sure your house is in order, there a few things you should do before the ball drops on New Year's Eve.
- Give your business a thorough financial evaluation—was it a profitable year?
- Get your financial records organized so you're prepared to file your taxes
- Take actions with tax implications this year—establish a retirement plan, make tax-impacted purchases, fund a Health Savings Account (HSA)
- Take time to acknowledge your best employees—and your best customers
- Get strategic for next year and start working on your business objectives
Although the end of the year can be a busy time for many small businesses, it's also a great time to set up the beginning of next year for success. Keep reading to discover more.
As a hard working small business owner or entrepreneur, you devote countless hours and significant amounts of effort into keeping your enterprise operating at peak level. The end of the year represents a welcome time for festivities and celebration, but also an opportunity to perform a year end evaluation and plan for the upcoming year. The following five items represent suggestions for ensuring that your company or practice not only survives, but thrives for the coming year and beyond.
A major aspect of year-end planning involves getting your company’s financial house in order. This means evaluating your company’s financial statements, including the balance sheet, income statement and cash flow statement. These documents provide a snapshot of where your business stands now, along with insight for possible future strategies. The balance sheet outlines your business’s assets, liabilities and equity. The income statement itemizes expenses and revenue, documenting whether your business is currently operating in the black, or in the red. The cash flow statement illustrates how your company’s revenues were spent, such as operating expenses, loans and loan repayments and investments.
The end of the year is also an ideal time to begin synthesizing and organizing financial and other relevant business-related records. Ideally, you’ve been keeping organized records throughout the year. If that’s not the case, now is the time to begin synthesizing and organizing your company’s records. These records include any or all of the following:
- Operating Expenses
- Bank Statements
- Invoices and Receipts
- Equipment and Inventory
- Rent or Mortgage
- Loan and Credit Card Payments
- Insurance Premiums
- Tax Forms and Records
The end of the year is also an ideal time to determine which records should be retained and which records are no longer needed. It’s wise to consult with an accountant or financial advisor concerning specific records. However, conventional wisdom recommends the following general guidelines for retaining various types of business-related records.
- Business Tax Returns – Indefinitely
- Supporting Tax Documents – 7 years
- Employment Tax Records – 4 years after due date or payment date, whichever is later
- Business Asset Records – varies according to when assets were sold or disposed of
- Accounting Records – 7 years
- Human Resources Records (Benefits, Pensions, Profit Sharing) – Indefinitely
- Candidates Not Hired – 3 years after last interaction with the candidate
- Former Employees – 7 years after separation date for the worker
- Workers Compensation Records – up to 10 years after claim settlement
- Cancelled Checks – 7 years
- Bank and Credit Card Statements – 7 years
In the absence of specific guidelines or requirements for longer retention periods, the Uniform Preservation Act of Private Business Records Act (UPPBRA) specifies three years as a responsible period for business record retention.
If your evaluation determines that some records can safely be discarded, the next step is to determine how to do so responsibly. Depending on the nature of your business, you may be subject to the stringent requirements of the Federal Trade Commission (FTC) Disposal Rule or the even stricter Gramm-Leach-Bliley (GLB) Safeguards Rule. However, exemption from federal regulations does not translate to a license for careless document disposal. At minimum, paper documents should be fed through a cross-cut or micro cut shredder. Electronic documents should be securely wiped from both local computers and network backups.
According to a recent survey conducted by Wasp Barcode Technologies of 393 small business owners, more than 70 percent of all companies outsource tax preparation, relieving themselves of the burden of completing and submitting returns to the IRS or the state. The survey reported that 62 percent of survey respondents believed that their accountants could do more to reduce their taxes. However, the responsibility of reducing tax burden does not fall exclusively on an accountant.
Providing accurate and complete records is essential for ensuring that your company’s tax burden is minimized as much as legally allowed, whether you prepare your own taxes or hire an accountant or tax preparation firm. In addition, engaging in one or more year-end strategies can make a significant impact on your company’s tax burden come April next year:
- Make major purchases before the end of the year. IRS Code Section 179 and the recently passed Tax Cuts and Jobs Act allows deductions up to $1 million for property (except passenger cars, where deductions are capped) used at least 51 percent for business purposes. Purchases of most new and used items are also eligible for a first-year depreciation bonus allowance.
- Establish a retirement plan. The law actually allows contributions to be made to the plan up to April 15, or October 15 if you file as an individual and take an extension.
- Likewise, if you are self-employed with an eligible high-deductible health insurance plan, consider opening and funding a Health Savings Account (HSA) by December 31.
Worker, Customer and Client Recognition
The end of the year is also an ideal time to recognize the people without whom your company or enterprise would falter — your customers or clients, and any employees or contractors you work with. Small gifts or tokens of appreciation are well received; while a year-end party or get-together is a very generous gesture that generates good will during the festive season. This sort of gesture need not break the budget — gift cards or an in-house lunch are both appreciated and carry reasonable price tags.
Strategies for the Coming Year
Even if your company or enterprise has had the best year ever, this is no time to rest on your laurels. Your year-end evaluation should also include strategies for future growth. Consider areas where there is room for improvement, or where additional resources may be desired or required. Consider whether you should obtain additional working capital, hire more people or expand into different geographical and/or service areas. Prepare an inventory assessment to determine capital investment in your present inventory. Evaluate service contracts to determine whether renegotiation is called for. After completing this evaluation, draw up a rough action plan for tackling your goals for the coming year.