Year End Financial Strategies for Small Business Owners

By on December 1, 2015

This time of year, many business owners are overwhelmed with holiday shoppers or their own vacation time and will rely on their accountant to figure out which deductions they must lock in by year end or which business strategies will qualify them for needed tax credits. Certainly your financial advisor can help, but they can’t do it alone.

Business owners need to be pro active participants in annual bookkeeping and tax planning — particularly if you have unmet business goals or questions about next year’s business challenges. Your trusted financial advisor is also someone who can help protect the business and make you more money.

Assess the State of Your Business Accounts

You cannot make any sound financial or tax planning decisions for the future if you do not know where your current business finances stand — that means accounting for how much you have taken in and how much you’ve spent within the year. If you do not have a bookkeeper, there are plenty of apps to help automate most of the work for you.

Once you have done your basic financial housekeeping, owners may need to prepare (3) standard business financial documents for you and your financial advisor to review when developing final recommendations to limit tax liability and prepare for next year:

  1. The Balance Sheet is a summary of how your business is doing financially. It shows all your business’s assets, liabilities and equity.
  2. The Income Statement itemizes your business’s profits and losses to determine if you are overall profitable.
  3. The Cash Flow Statement reconciles your cash inflows and outflows for operations, investment assets, loans, etc.. to show a net increase or decrease in your business’s cash flow

Once you’ve examined your balance sheet, income statement and cash flow statement, check your business’s current debt ratio and profit margin. It won’t take long with your balance sheet in front of you. With a full assessment of your business accounts you will have an easier time come tax season and be in a better position to make sound end-of-the-year decisions.

Prepare for Tax Liabilities

Now that you and your financial advisor or tax professional knows where your business stands at the end of the year, it is time to look for tax savings. Depending on your personal situation, your business may benefit from claiming certain losses, receiving credits (say for offering employees a health plan), spending money on deductible investments, charitable contributions and more.

Almost every business owner encounters a bad client or inventory shrinkage from depreciation, damage or thefts at one time or another. If you have an uncollectable debt or inventory loss on your books, now may be the time to write it off for a tax deduction. Be sure you have records of any attempts to collect payment if deducting a payment loss.

December 2014 will also be the time to make (qualified) capital investments in your business before the enhanced Section 179 depreciation deduction expires. Does your equipment need to be upgraded? Can you stock up on office supplies? Are there vendor payments you can make in advance?

The enhanced rules could mean an immediate deduction of up to $500,000 for capital investments rather than just $25,000, however it is important to consult with your advisor to decide whether or not you should write off the entire amount of an equipment purchase or spread it out over multiple tax years.

Consider sharing your good fortune by giving money, inventory, or other property on a tax-deductible basis. There are enhanced deductions for donations of certain types of gifts, such as food or inventory to charitable organizations.

Finally, certain businesses are eligible for deductions and credits for offering health insurance and retirement plans to their employees. Set up a qualified retirement plan before December 31, even if you are the only participant as a self-employed business owner, to help reduce your taxable income and/or qualify for credits for part of the plan start-up cost.

If you paid premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace you may be eligible for a tax credit. Small business employers who do not owe tax this year may carry forward or back the credit to other tax years. In addition, since the credit is typically less than the premiums paid on behalf of employees, the business may also be able to deduct part of the premiums in excess of the credit.

Once you have a handle on your business’ taxable income and tax write-offs, sit with your trusted financial advisor or tax professional to design a tax strategy for the next few years. For example, if you expect the business to pay the same or lower rate in 2015, consider postponing income into next year while accelerating deductions this year. If you expect the opposite, try to accelerate income before the end of this year while postponing your deductions into 2015.

Bring Your Commercial Insurance Protections Up-to-Date

Use the year-end wrap-up period to re-evaluate what coverage your business requires, and determine whether your current plan is sufficient. As your business grows or downsizes, it’s likely that your insurance needs will change; that five year old commercial insurance policy may not cover the 20 new high tech products you now carry and you will want to obtain better coverage.

Find Tax-Advantaged Savings for Your Retirement

Hopefully you have spent some time this year planning for your own retirement, whether that means deciding who to transfer the business to, putting money into a 401 k and IRA, or using a permanent life insurance policy to protect the business and generate tax-free income for retirement. Aside from maxing out your annual contributions to those solo 401 ks or rolling over assets to a roth IRA before the year’s end, ask your financial advisor about the benefits of a properly structured permanent life insurance policy which can provide security to your heirs (with a death benefit) and cash value investment returns.

The money you spend on premiums today is not taxed until your withdraw the cash or you may access those returns tax-free through policy loans. Use the money on operational capital, protecting the business from financial issues after the loss of a key employee or paying for life in retirement. Just be sure to address retirement savings before January to give yourself the gift of a secure financial future today.

Begin Making Business Plans for Next Year

Now that you know where your business finances stand, it is time to pull out your business plan and review last year’s goals. Did you accomplish your business goals? Why or why not? Are there still moves you can make this year to start the new years off right?

Update your Online Marketing Content

Dedicate at least one day to addressing your online marketing content before you are fully consumed by the holidays. Make sure your contact information and public calendars are up-to-date, as well as freshen up your business’ social media profiles so potential clients or customers are not lost when looking for you in the new year. If you don’t have the time be sure to hire someone if needed…marketing strategies are rapidly changing to keep up with technology and you don’t want to be left behind.

Make Adjustments to Your Business Structure

Have you outgrown your business structure? Many small businesses start out as sole proprietorships or partnerships, but as they grow the owners’ liabilities also grow. An incorporated business (like an S Corp or LLC) may help to shelter an owner’s personal assets as well as offer more flexibility and cost savings when it comes to taxes.

Set Goals and Budgets for 2015

Finally, write out your business goals and plans for the next year. Create budgets if your fiscal year starts with the calendar year. And schedule semi-annual visits with your financial advisor and business consultants to keep you on track for 2015.

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About Kendrick Lee

Senior writer and business columnist for FSN - Successful businesses, large or small, will lend to successful owners, employees, local communities and markets for continued economic growth. Since there are so many risks, finances and procedures to consider when running a business, Kendrick is dedicated to sharing business tips, strategies and ideas in the public sphere. Find Kendrick on !

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