While working to help franchisees gain an improved understanding of their financials (P&Ls, Cash Flow and Balance Sheets), I often refer to this process as one of the “Un-Fun” aspects of effectively operating a profitable and cash flowing business. Believe it or not, financial statements can actually be FUN. Understanding and learning how to read, analyze and interpret the financial performance of your business can be financially rewarding (and that equals FUN). Plus, by better understanding how to read your financial statements, you are now in a much better position to make more informed business decisions and to, hopefully, avoid making costly business decisions.
In many ways, financial statements are a lot like report cards (remember high school?). A financial statement can tell you “how well” your business performed over a period of time (week, month, quarter or year) in most cases. That’s the reason I encourage franchise owners to take the time to learn how to understand their financial statements.
With this year's challenges, having timely and accurate financial data becomes even more critical to help you make sound decisions for your company, and to reach your financial goals and objectives.
So, by setting a schedule in place to finalize your financial statements for the year, you can get a head start on tax planning. This will help you take proactive steps before the end of this month and avoid the tax season rush, and identify any possible money saving options.
Here's a checklist (Source: Business Resource Services):
- Call your bookkeeper, accountant, and/or CPA today and schedule a meeting no later than January 31.
- Set a date that you expect your year-end numbers to be finalized. Communicate this date with them and get their commitment to achieve it. Suggestion: Valentine's Day is February 14. What better gift to give yourself?
- Review with your investment advisor and/or retirement plan administrator and plan funding for the current year retirement contributions.
- Ask your CPA what issues need to be resolved to make this deadline. Most likely they will include:
- Depreciation schedules (start getting capital purchases and sales to your CPA now, so he/she can start updating your depreciation schedule)
- Payroll reconciliation
- Compare current year-to-date expenses to prior year for any unusual/unexpected variations and investigate
- Have your CPA come up with an initial tax liability estimate for the year by forecasting remaining revenues and profits
- Work with your CPA to come up with a strategy to minimize your tax liability for the coming year
- Review needs for working capital for the coming year, including anticipated capital expenditures
- Review current financing and bank relationships, including line of credit and term loan balances and potential financing (and refinancing) needs.
- Is your QuickBooks Online (QBO) up to date and accurate? If not, what's the plan to update?