It’s full-blown winter for many of my pals up north already, but here in the Rockies, fall is in full swing. There’s a pumpkin-spiced chill in the air; the leaves are turning; the bears, pronghorns, deer, and elk are out; and all anybody really feels like doing is taking long naps and eating all the food. It’s also the perfect time to take a hard look at the books before the holiday season hits and all the quarterly and year-end filings come due.
As we discussed last time, running your own business, even a tiny home business, necessarily generates a ton of paperwork. A whole lot of that is going to be financial records: receipts, bills, pay stubs, bank ledgers, tax forms, more tax forms, and still more tax forms you probably never knew existed before. If you hire anything out, you’ll enjoy a whole new level of record-keeping that occasionally results in random visits from people who want to inspect all of that stuff to see if you’re doing it wrong.
To that end, it’s a good idea to take stock of your business’ performance by getting your financial records in order a month or two before the year ends. This not only lessens your tax prep workload later but also enables you to determine whether you should make changes to your operations before the tax year closes. You may find that you should be holding additional funds to cover tax bills, or that you need to update your insurance coverage, or that it makes sense to purchase deductible equipment.
Part of this process, if your business is old enough, should involve a tentative year-to-date profit and loss comparison with the previous year, and perhaps the last five or 10 years, if applicable. How does your performance compare overall? Are your numbers on par with past years’? Are you surpassing them? Where do you see the most significant changes? What’s driving those figures?
If you have employees, check to see how your payroll expenses may have changed. How will that impact your tax obligations and insurance costs? Can you afford to give holiday bonuses? What about accrued leave and holiday time?
Keeping things organized and checking up on your P&L stats at regular intervals is generally proper practice, but an in-depth analysis is especially important to complete before the end of the year. Give yourself a little extra time to make changes and plan for additional expenses. You’ll save a lot of headaches later on.
*This post was originally published in October 2015.*