Is Your Business Ready for the New Year?
Published October 21, 2024 – As the year comes to an end, most of us are busy with holiday preparations and celebrations. But if you run a business, there is something else you shouldn’t ignore: your year-end financial review. Taking some time now to look at your finances can make a big difference in how your business performs next year.
Why Year-End Financial Reviews Matter
Year-end financial reviews help you understand how your business did last year and prepare for what’s ahead. By looking at your finances, you can see what worked and what didn’t and set goals for the next year.
Benefits of Reviewing Financial Performance
Year-end financial reviews provide insights into how well your business is doing. By thoroughly analyzing your financial performance, you can pinpoint what contributed to your success and identify areas that need improvement. This enables better decision-making, helping you focus on profitable activities while minimizing expenses that do not contribute value.
Preparing for the Upcoming Year
With a clear understanding of your business’s current financial health, you can develop a more effective strategy for the upcoming year. This involves setting realistic goals, refining your budget, and making informed decisions regarding expansion, marketing, or investment opportunities. A comprehensive year-end financial review provides a foundation for a solid business plan.
Key Financial Statements to Analyze
When doing a year-end financial review, it’s important to look at three key financial statements: the income statement, balance sheet, and cash flow statement. Each one gives you valuable information about your business’s performance.
Income Statement
The income statement, sometimes called the profit and loss statement, shows your business’s revenues and expenses over a specific period. This statement lets you know if your business made a profit or a loss. It also lets you identify which products or services were the most profitable and which costs were too high. This can help you decide where to make changes in the upcoming year, like adjusting prices or cutting unnecessary expenses.
Balance Sheet
The balance sheet is like a snapshot of your business’s financial health at a specific point in time. It shows what your business owns (assets), what it owes (liabilities), and the owner’s share (equity). The balance sheet can help you understand if your business is financially stable. If your liabilities are higher than your assets, you might need to focus on paying down debt or finding ways to increase your cash flow.
Cash Flow Statement
The cash flow statement tracks how cash is coming in and going out of your business. Even if your income statement shows a profit, you could still face cash flow problems if the money isn’t coming in when you need it. By looking at the cash flow statement, you can identify potential cash shortages and make sure you have enough cash to cover your expenses. This can help you plan better for the upcoming year and avoid surprises.
Identifying Tax-Saving Opportunities
Another important part of a year-end financial review is looking for ways to save on taxes. There are two main areas where you can find tax savings: deductions and credits and reducing tax liability.
Discovering Deductions and Credits
Taxes can take a big chunk out of your profits, but there are ways to reduce the amount you owe. By carefully examining your finances, you may find deductions and credits you didn’t know about. For instance, expenses related to business travel, office supplies, or even certain types of insurance premiums might be deductible.
Reducing Tax Liability
Planning ahead can significantly reduce your tax liability. You can make charitable donations before the year ends to lower your taxable income. Additionally, investing in retirement plans helps you and your employees while providing tax benefits.
Setting Your Business Up for Success
Don’t let the end of the year pass without taking control of your finances. Year-end financial reviews are not just about looking backâthey are about setting your business up for future success. Consider consulting with a tax professional from JTC CPAs who can help you identify tax-saving strategies specific to your situation. JTC CPAs can help you make the most of your year-end financial review so you can save money and start the new year right. Contact us today and let us set your business up for success!
Sources:
- Internal Revenue Service. Tax Guide for Small Business (For Individuals Who Use Schedule C), Publication 334, 2023, www.irs.gov/publications/
- Internal Revenue Service. “Year-Round Tax Planning Pointers for Taxpayers.” 24 May 2023, www.irs.gov/newsroom/year-round-tax…