Avoiding Year End Surprises

As the year comes to a close, it’s crucial for small businesses to be proactive, organized, and prepared for the year ahead. Here’s a breakdown of key areas to focus on to ensure a smooth transition into the new year.

Contracts and Annual Payments

Before year-end, review any contracts that may require renewal or payment. This includes:

• Service Contracts: Ensure that any ongoing services (like IT support or marketing) are renewed to avoid disruptions.
• Insurance Renewals: Do your policies renew on or around year end? Review your policies. Spreading out renewals could help you get a better deal as underwriters are inundated.
• Annual Subscriptions: Pay for software or services that are billed annually to lock in current rates.
• Do you have these factored in your cash flow plans?  Do you need all these contracts? It may be a great time to review.

Tax Planning

Effective tax planning can save you money. Every situation is unique, so be sure to talk to your tax accountant well before year end. It may make sense to consider these actions:

• Accelerate Deductions: If you have planned purchases (like equipment or supplies), consider making those purchases before year-end to take advantage of tax deductions.
• Defer Income: If possible, delay invoicing until after year-end to push income into the next tax year, which can help manage your tax liability.
• Keep in mind that the January 15 tax payment is just around the corner. Planning for this can help you save capital and avoid cash flow issues. Do you know what your estimated payment is likely to be?

Accounts Receivable (A/R) Management

As year-end approaches, many businesses experience a slowdown in A/R collections, perhaps customers are busier, or navigating people out of the office. Prepare for this by:

• Communicating with Customers: Reach out to clients to send statements proactively and remind them of outstanding invoices. A friendly nudge can help ensure timely payments.
• Reviewing Payment Terms: Consider adjusting payment terms for the new year to encourage quicker payments. Does a year-end review make sense? 

Productivity Considerations

Year-end can lead to decreased productivity for both your team and your customers. Reflect on:

• Operational Efficiency: Identify any bottlenecks in your processes that could be exacerbated during this busy time. How much productivity do you potentially lose with your team taking time off? Are you planning accordingly?
• Customer Engagement: Ensure your customers are aware of your availability and any changes in service during the holiday season.

Year-End Checklist

Having a year-end checklist can streamline your processes and alleviate anxiety. Numerous events and deadlines occur only at year-end. Revisit these to ensure you’re prepared:

Consider including:

• Financial Review: Assess your financial statements, payroll, year end incentives and prepare for audits.
• Check Compliance Requirements: Ensure all regulatory requirements are met.
• Operational Reviews: Do you have any key operational deadlines to meet?

Inventory Count

Finally, it is best practice to conduct a thorough inventory count at year end. This is essential for:

• Accurate Financial Reporting: Knowing your inventory levels helps in preparing accurate financial statements. Even if it is not relevant today, a buyer may ask that you produce historical year-end inventory numbers. Better to be prepared.
• Identifying Slow-Moving Items: Use this opportunity to plan promotions or discounts to clear out old stock or potentially make write-downs.

By focusing on these key considerations, small businesses can navigate year-end challenges effectively. Preparing now will set you up for success in the new year, allowing you to hit the ground running!