First Person: 4 Things Every Small Business Owner Should Do Before Year End

Yahoo Contributor Network

For my small business, the fourth quarter is the time to evaluate the current year's successes and failures and to make important financial decisions for the coming year. High on my small business to-do list this year are budgeting, tax planning, and business plan review.

Review Performance Relative to Budget

I make a budget for my business prior to the beginning of each year and, of course, I track its performance relative to budget periodically throughout the year. But the fourth quarter is the time when I take a more comprehensive look at how my business performed financially with a special focus on any significant variances from budget (both positive and negative), why they occurred, and what I can learn from them that may help my business in the future.

Prepare a Business Budget for the Coming Year

Reviewing my business's performance relative to its current-year budget provides the information that I need to prepare a budget for the coming year. I use actual budget results for the current year as a template for my projected budget, then make adjustments to specific revenue and expense categories as necessary. My budget includes operating and capital expenditures, as well as projected revenue, so it reflects my expectations for cash inflows and outflows during the year. I budget by month, which I find helpful in identifying timing mismatches between projected cash in and projected cash out, so that I can address them preemptively.

Focus on Yearend Tax Planning

For the most part, the fourth quarter is my last chance to act on taxes for the year, so I set aside some time to focus on this important issue. Among other things, I look at taxes due and taxes paid and whether there are specific actions I need to take to achieve my business's tax goals. If I want to minimize my business's taxes, for example, I may want to contribute more to retirement plans before yearend, to book additional deductible expenses this year, or to defer some revenue to next year.

Update My Business Plan

Updating my business plan involves taking a look my small business's financial and operational performance in the past year and using that information to set strategies for the coming year. My focus is both on the current year's successes and failures and what I can learn from them. Once I have done this strategic review, I can begin to set business priorities for the coming year and to develop specific strategies to achieve them. I try to keep this business plan simple and to focus on just two or three goals that, if achieved, could have a meaningful effect on my business's performance both in the coming year and beyond.

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