How to Conduct a Year-End Business Review

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year end business review

As the year comes to a close, it's important to take some time to conduct a year-end business review. To make sure your house is in order, there a few things you should do before the ball drops on New Year's Eve.

  1. Give your business a thorough financial evaluation—was it a profitable year?
  2. Get your financial records organized so you're prepared to file your taxes
  3. Take actions with tax implications this year—establish a retirement plan, make tax-impacted purchases, fund a Health Savings Account (HSA)
  4. Take time to acknowledge your best employees—and your best customers
  5. 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 yourself up for success for next year. 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 business review 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.

Start your year-end business review with a financial evaluation

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.

One metric to dig into using these documents to dig is your profit margin. How much did your business bring in in revenue this year? On the flip side, how much did it cost you to do business this year? The difference between these two numbers is your profit margin – if this far off from your projections, now is the time to dig into why.

Next, take a closer look at your cash flow ratio over the past year. To get your cash flow ratio, divide your income by your liabilities. Take a look at how your cash flow ratio changed over the course of the year – did it dip significantly during certain months? If so, plan ahead for next year by putting cash aside or get a line of credit to carry you through the slow period.

Learn more about how to do an in depth evaluation of your business’ financial health by downloading our guide, “Evaluate Your Business’ Financial Health.”

Get your business records in order

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
  • Payroll
  • 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.

Start preparing for tax season now

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.

Take stock of your employee performance and staffing needs

When conducting a year-end business review, one of the main areas you’ll want to evaluate is employee performance and general staffing needs. Spend some time with your key employees to go over their performance in 2019. You may want to give raises and year-end bonuses for your top performers to keep them motivated. You should also solicit feedback during this conversation, as they may have ideas on how to improve business performance. Don’t forget to also assess your hiring needs for the next year and build those costs into your budget for next year.

More broadly, the end of the year is an ideal time to take a moment recognize the people without whom your company or enterprise would falter —  both your customers and your employees. Small gifts or tokens of appreciation are well received; while a year-end party or get-together is a very generous gesture that generates goodwill 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.

Use your year-end business review to set goals for next 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.

It can be easy to get lost in the numbers while conducting a year-end business review. However, it’s equally as important to take some time to reflect on a high level what’s working and what could be improved in your business. Celebrate the initiatives and improvements that paid off this year, and think about changes you could make in areas that still need some improvement.