With the end of the year looming, this is your
last chance to maximize or minimize earnings
This article originally appeared in the October 2015 edition of INSTORE.
The end of the year is fast approaching, meaning this is a good time to be thinking about your financial situation. Most businesses wait until the year-end has passed before getting their statements organized, but this can be too late to take advantage of some pre-year-end financial planning.
For any business owner looking to sell in the next three to five years, each year’s financial statements become increasingly important as any prospective buyer will be looking back at this information when it comes time to assess the business’s performance. That’s why now is the time to be thinking ahead and making sure your financial house is in order.
First, have a close look at your inventory. How much of it is now worthless? Should you be getting ruthless ahead of the year-end (and particularly the holiday season) with this product? Clearing it out can provide you with much needed cash to get you through the December lead-in period. What if this product has been around for years and survived every sale you’ve ever put it through? Then maybe it’s time to write it off. Talk to your financial adviser about what steps you can put in place now with the year-end coming up. What year-end expenses could you be claiming as a deduction? Bringing expenses forward into this financial year can help minimize your tax liability but again this depends on what your objective is. If you want to reduce your tax bill, then showing a lower profit is certainly an advantage. However, if you’re planning to sell your store, then you would want your profit to look as good as it can. Again, these objectives should be discussed with your financial adviser ahead of the end of the financial year to determine which strategy is right for you.
“Have a close look at your inventory. Should you be getting ruthless ahead of the yearend?”
Are you looking at investing in any new plant or equipment? Once more, discuss this with your financial adviser. They can advise you as to the ideal timing to make the most from these larger expenses.
What about income? Getting some of your work in progress completed ahead of the financial year-end can boost your profits but is this what you need to be doing? There are advantages and disadvantages depending on your financial goals. Speeding sales through, or contacting customers to collect their repairs can be good for cash flow and help show improved earnings depending on how your financials are completed. However, it can lead to a higher reported profit and an increased expense with Uncle Sam. Is this what you need to be doing?
Again, now is the time to ask these questions of your CPA or financial adviser. A little bit of preparation can help make (or save) a lot of money later.