Be sure to schedule some time with your accountant before the end of the year. In addition to a normal review of your company’s financial statements, there are four other questions you should prepare to ask.
Is My Company Structured Properly?
The end of the year is a logical time to determine what kind of business entity makes the most sense for your company in the years to come. Don’t assume that what made sense when you started your company is still the best option.
The legal protections provided by certain structures, such as corporations and limited liability companies, are important factors to consider, but most of the decision tends to revolve around your firm’s finances and its probable tax situation.
Changing tax policies can provide incentives to change structures. For instance, in 2013, some LLCs taxed as sole proprietorships will see their Medicare contributions increase by .9 percent on self-employed income. And S-corporations and partnerships will be hit by a 3.8 percent Medicare tax increase on interest, dividends, and capital gains. Strategies involving a change of business structure might help minimize the impact.
These are specific, complicated examples, but they illustrate how the evolving tax codes make it worthwhile to take a hard look at your business structure.
Are There Asset Expenses I Should Take Before Year-End?
Find out if you can take advantage of a Section 179 deduction, which allows you to deduct the cost of certain kinds of “tangible” property as an expense, rather than requiring it to be depreciated over a number of years. This can do wonders for your cash flow.
But don’t wait around! The deduction will be reduced from $139,000 this year to $25,000 in 2013.
For some other assets, which may not qualify for the expense designation, there is a 50% bonus depreciation allowance, and that also expires at year-end. Qualifying purchases must be bought and placed “in-service” this year and have a depreciation period of 20 years or less.
Tip: Off-the-shelf computer software is eligible for the 50% bonus depreciation.
For more information on the Section 179 deduction, click here.
In any case, if you’ve had a profitable year, it makes sense to purchase equipment and supplies before January 1, so the expenses can be deducted this year. On the other hand, if it’s been a down year, defer whatever purchases you can. Hopefully, you can use the deduction next year.
Are My Cash Flow Projections Reasonable?
Before you see your accountant, run a sales report that shows revenue received over the last year from every product or service category.
Review the information, and analyze each category to determine if you can expect at least the same amount of revenue from each source in the year ahead. Try to strike a balance between optimism and realism, and remember to consider factors like your competition, the changing needs of your customers, and the general state of the economy when making your projections.
On the expense side, pay particular attention to your company’s need for – and ability to repay – additional financing.
If you need funding, well…you need funding. But move forward with caution and be sure to account for the impact the debt service will have on your overall cash flow situation. Obvious question: will the scheduled debt payments be more than offset by the additional revenue expected from securing and spending the loaned funds?
Is it a Good Time to Give?
It’s no secret that charities, foundations and other tax-exempt organizations heavily solicit donors in November and December. They need the funds, of course, to start the next year in a strong financial position, but they also understand the last-minute tax incentives available to donors can be great motivators.
Work with your accountant to determine what, if anything, you can afford to give. Once you have a number, consider asking for suggestions for gifting from your staff. There might be hard-working, worthy organizations in your community that you did not know about.
But whatever you give, make sure you send the check – and receive a receipt as proof – before year-end.
Bonus Question: Is There Anything I’m Missing?
Open-ended questions tend to bring you unexpected, potentially valuable information. Ask your accountant to chime in on anything he thinks you’re overlooking, from a financial standpoint. If his suggestions make sense, ask for advice on implementing his recommendations in time to benefit your company in the coming year.
For More Great Ideas for Entrepreneurs from MP Star Financial:
MP Star Financial’s invoice factoring services can help ensure you have cash flow needed to run and grow your business. Call MP Star Financial for more information about invoice factoring at (800) 833-3765, extension 150.