It’s important to take a look at where your small business stands as the year comes to a close. These small business year end tips can help you to make sure your small business is in good shape financially as you head into the new year.
Small Business Year End Tips
1. Set Aside the Time to Look at Your Business
First, set aside time to look at your business closely at year’s end, Michael Chaffin, Senior Vice President and National Business Banking Sales Manager, Fifth Third Bank told Small Business Trends recently. This means small business owners need to stop focusing on making money long enough to take account of where their business stands and where it’s going financially as the year draws to a close.
“Business owners and entrepreneurs tend to go from year to year just seeing how it all happens,” Chaffin said. “They don’t take the time to step back and look at the big picture.”
If you haven’t done this already, block some time out on a calendar today.
2. Look at Your Margins
This is one of the biggest places to start. You need to look for the places where your margins are being squeezed and then dive in deep to find out what’s going on. The metrics you want to pay attention to here are the gross profit level and the net profit level.
Employee costs and/or vendor prices are two of the common points you should look at.
3. Have a Team Meeting
Bring key employees together as the year winds down. Depending on the size and nature of your small business, that team could include CPAs and lawyers too.
“If you use consultants, you should bring them in at the end of the year too,” Chaffin says.
Having this kind of team meeting is a great way to look at what’s going well operationally — and what’s not.
4. Talk with Your Suppliers
Looking at the financials like revenue growth is self explanatory. To get a really complete overview, you’ll need to chat with your suppliers too. Understanding how these contracts are impacting your small businesses’ margins is important.
Talk with them about what they see on the horizon as far as cost and availability go. Dig deep into the reasons behind any price increases.
5. Look at Estate Planning
The end of the year is also a great time to look forward for small business owners. You might still be years away from retirement. However, it’s always a good idea to look at plans for selling the business or transitioning off ownership to family.
Start now. These aspects take three to five years or sometimes longer to put into play. Reaching out to your CPA is the first step.
6. Spread Out Your Client Base
Chaffin says it’s especially important at year’s end to make sure you haven’t concentrated too much on one client.
“That’s always a challenging item for smaller businesses,” he says. Although those larger clients are usually quite profitable, they present a big risk. If one suddenly leaves, your bottom line could tumble.
As tempting as it might seem to concentrate on one or two big clients, you need to remember a diverse client portfolio is a healthy one. Try branching out a little. For example, if you run a diner that services the local mill, try advertising to the local hospital.
7. Prepare for the Year Ahead
It’s also a good practice to remember your small business is moving into another year. Looking at your financial health at the close of one year means preparing for the upcoming one.
Asking whether you have the staff and equipment needed for the year that’s about to start is necessary too.
Here Chaffin suggests getting out in front of any of these needs by having some credit in place. That way, your small business will be able to fund the changes quickly as a new year starts.
8. Get caught up on your bookkeeping
You can’t make any sound financial or tax planning for the future if you don’t know where things stand—and that means understanding actually how much you’ve taken in and how much you’ve spent year to date. If you are not working with an accountant, there are plenty of apps to help automate most of the work for you. For example, you can take a look at FreshBooks’ expense tracking. By getting caught up on your revenue and expenses now, you will have an easier time come tax season, and you’re in a better position to make sound end-of-year decisions.
9. Revisit your pricing
Once you understand your business’ financial picture, it’s time to get honest about how things are going. Is your business model sustainable or do you feel like you’re working as hard as you can, but still treading water? Many freelancers and small business owners make the mistake of undercharging their clients: is your pricing adequately compensating you for your time, experience, and costs (which include taxes, retirement plans, health insurance, and more)?
The start of the New Year is a natural time to bump up your rates. And if you are billing clients by the hour, I also recommend reading FreshBooks’ eBook “Breaking the Time Barrier” to better understand how to put a price tag on your services.
10. Do some end-of-year tax planning
The majority of people think about taxes just once a year. As a result, they lose the chance to make any meaningful changes to help their tax situation. It’s smart to set up a meeting with an accountant before the year comes to a close, so you can follow any tax advice while it still matters for 2014. For example, if after organizing your books, you realize that you’ll have a larger-than-expected profit this year, consider pulling the trigger on that new computer or other expenses you’ve been considering. And by all means, see where you stand with your estimated tax payments for the year and get caught up if needed.
11. Change your business structure
If you have been thinking about “upgrading” your business structure from a sole proprietorship to an LLC or corporation, now is the time. That’s because you can simplify your record keeping and taxes by starting 2015 as the new structure. In fact in the U.S., you can even have a document filing company complete the paperwork now, and then send it in to the state office at the start of 2015. Read “Business structure: choose the best one for you” to learn more about the various business structures, and their pros and cons.
12. Update your website and social media profiles
Throughout the year you undoubtedly make time to help your clients prosper, but how much time do you dedicate to growing your own business? Is the content on your website and business social media profiles up to date? Dedicate one day this Fall to touching up, revamping, or overhauling your digital presence. If you simply can’t spare a full day from billable work, then spend two hours per week for one month. You can even hire someone if needed…just don’t let your own business languish while you help everyone else move ahead.
13. Close an inactive business
Maybe you started a dog-walking business before you got serious about your design work. You haven’t walked a dog in ages, but various government agencies may still think that dog-walking business is active (and they’ll be expecting your tax return, annual fee, etc.). By the end of the year, you should officially close any inactive business. This is particularly true if you incorporated (formed an LLC), filed for a reseller’s license or any other kind of permit. The last thing you want is to find out that you owe three years’ worth of annual fees for a business you assumed was shuttered a long time ago.
14. Plan your holiday schedule
Your clients will expect you to take time off around the end of the year; more than likely, they’ll be quiet around the holiday season, too. However, you should still give all clients ample notice of your plans and set their expectations for your availability. Planning ahead is the best way to ensure a smooth and stress-free vacation.