What do we think of when we think of fiscal year end? Taxes! What else? That's why for businesses, year end is the perfect time to do your business planning for the following year. You're already dealing with the books so why not do some analysis and make some decisions to ensure that your business prospers over the coming year?
This year end checklist for small businesses will help you get your income taxes in order and get your business planning off to a good start.
1) Get your financial books in order.
For some small businesses, this is really difficult, while for others, it's a breeze. But whether you're one of those solo entrepreneurs with a glovebox full of receipts that haven't even been entered yet or a small business person who has a bookkeeper on your payroll, you have to get this step done before you can do anything else.
So get the help you need and get on with it. Hire a bookkeeper and/or accountant if you need to. Here's some advice for finding a good accountant.
And here's some advice for making this step easier in year-ends to come: 7 Ways to Make Record Management Easy.
2) Determine your position.
The next step on the year end checklist is to figure out where your business is now. There are three areas you need to examine:
a) Finances - Examine your financial documents and analyze ratios.
First, you need to prepare (or have prepared for you) the standard three business financial documents that will be the basis of your decisions.
The Balance Sheet is a summary of how your business is doing financially at a particular point in time. It shows all your business's assets, liabilities and equity. This explanation of how a balance sheet works includes a balance sheet template that you can use if you like.
The Income Statement lets you see at a glance whether or not your business is profitable at a particular point in time by itemizing your revenue and expenses, resulting in a profit or loss. Here's an income statement template for a service-based business.
The Cash Flow Statement reconciles your opening cash with your closing cash for a particular period, showing you where the money has gone. To prepare a simple cash flow statement, for a particular time (such as the year just past), list and summarize your business's cash flow inflows and outflows for each of these three areas:
- Cash flow from operating activities - such as revenues and expenses
- Cash flow from investing activities - such as assets purchased and assets sold
- Cash flow from financial activities - such as loans and loan repayments
This will show you the net increase or decrease in your business's cash flow over the period of time you're looking at and show you at a glance where the money went.
Once you've examined your balance sheet, income statement and cash flow statement, dig a little deeper by checking your business's current ratio, total debt ratio and profit margin. It won't take long with your balance sheet in front of you. See Give Your Business a Health Checkup for instructions.
b) Goals - Evaluate your goals from last year.
Now that you know where your business is, it's time to take a look at how it got here. Pull out your business plan and any other planning documents such as last year's action plan and review last year's goals.
Did your business accomplish what you set out to do? Why or why not? Make some notes on your thoughts about your successful accomplishment of your goals (or lack of it). These will be handy when you do your business planning for the current year (step 3 of this year end checklist).
c) Taxes - Evaluate your current tax strategies.
8 Small Business Tax Strategies to Reduce Income Tax reviews tax strategies sole proprietorships and partnerships can use to reduce the amount of income tax they pay, such as income splitting and maximizing your business's Capital Cost Allowance claim.
Which of these tax strategies have you used and how well did they work for you? Investigate different tax strategies that you haven't used, such as changing your business structure to a corporation. Talk to a professional such as an accountant and/or tax lawyer to get advice about which tax strategies would be best for your personal and business circumstances.
3) Plan for the coming year.
All right. You’ve done all the groundwork and you're ready to do some business planning. That means that you are going to:
- Set next year's goals.
- Prepare an action plan or plans.
- Start implementing your action plans.
Quick-Start Business Planning for Small Businesses will lead you through the process.
Before you set any goals, read 3 Rules for Setting Business Goals to make sure you are setting goals that are going to help you accomplish what you want to accomplish. For more information on how to set goals successfully, see my Guide to Goal Setting, a collection of goal setting articles and advice on everything from SMART goal setting through the goal setting formula that promotes achievement.
4) Get your tax documents prepared.
You can turn over the required documents to an accountant or prepare your income tax yourself.
Getting Your Tax Records Together for Your Accountant lists the key records your tax accountant will need to prepare your income tax.
Do-it-yourselfers may find Top Canadian Income Tax Software Programs useful.
If this is your first year as a sole proprietor or a partner, Your First Business Income Tax Return explains how to complete and file a T1 Canadian income tax form as a business.
That's It! You’re Done!
You know the cliché; businesses that fail to plan plan to fail. We all know how important business planning is, but it's easy to put off in the press of daily events. Hopefully this year end checklist has inspired you to get to it and made your business planning easier.