A Year-End Planning Guide for Business Owners

By Sarah Carlson, CFP®, CLU®, ChFC®

As the year draws to a close, it's an ideal time for business owners to evaluate their company’s financial health. Year-end planning is critical and can help establish a confident foundation for the future. However, for many business owners, year-end planning can feel overwhelming. This guide aims to streamline that process with the following step-by-step approach.

Review the past year's financial performance

Reflecting on the past year's financial performance before starting a new year can provide valuable insights. This reflection involves reviewing profit and loss statements, balance sheets, and cash flow statements. A comprehensive performance review can help identify trends and uncover the strengths, weaknesses, and opportunities for the year ahead.

Tax planning

Year-end tax planning involves understanding the current tax laws and determining suitable strategies to minimize tax liability. Reviewing business expenditures and deductions, retirement plans, and potential tax credits can help work toward effective tax planning. Seek financial or tax professional guidance to help uncover deductions and benefit from them.

Analyze cash flow

Analyzing cash flow is a key component in year-end planning since analysis can help business owners forecast their business's future financial needs. Identifying peak and low cash flow periods can help manage expenses and investments appropriately, working toward a financially productive state.

Plan for future investments

As part of year-end financial planning, consider future investments such as new machinery, product development, employee training, or expanding into new markets. These investments can stimulate growth and enhance the business’s competitive advantage.

Manage debt

Business owners often take on debt to grow their businesses. However, unchecked debt can harm a business. Year-end is a perfect time to take stock of the business’s current debt levels. Evaluate terms and interest rates, explore refinancing options to lower costs, and develop a plan to reduce debt steadily.

Set goals for the New Year

Setting goals for the New Year provides a roadmap for the business's financial success. These goals include increasing profits, reducing costs, or improving cash flow. Make sure these goals are SMART—Specific, Measurable, Achievable, Relevant, and Time-bound.

Create a new budget

Once the business's financial goals are determined, create a budget that aligns with business objectives and includes a detailed plan for income and expenses. A well-planned budget keeps the business financially healthy and aids decision-making throughout the year.

Consult professionals

It's beneficial to seek professional advice to determine whether the business is progressing toward continuity and growth. Financial and tax professionals can provide guidance and outline strategies tailored to the businesses and the owner’s needs.

In conclusion, year-end financial planning is an essential routine that sets the stage for the upcoming year: reviewing, reflecting, and strategizing for an independent future.

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Important Disclosures:

Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual.