Year-End Financial Planning Checklist for Small Business Owners

Read the full blog below to learn more.

 December 31 brings about deadlines for several critical areas of personal and business planning

We want to ensure that your company is best positioned for growth over the coming years

With constantly changing tax laws, new retirement plan regulations, and nuanced expensing rules, keeping on top of your business’s big-picture financial plan is key

Does the end of the year and the upcoming tax season bring about a few feelings of anxiety? It’s common among small business owners who are pressed for time during the hustle and bustle of Q4. Still, getting your financial ducks in a row now can save you time not only over the ensuing months but also years down the line.

As another year draws to a close, it’s time to take a step back and assess where your business’s financial plan stands. Here are seven tips you can cross off one by one as the holidays approach.

1.      The big picture: Review your financial situation

Your personal financial situation has a significant impact on how your business performs. Tidying up your budget might be step one. Analyze some of your biggest cash inflows and outflows as well as what recurring charges are crimping your budget.

From there, take a look at your liquidity position – do you have ample savings (earning at least a 5% interest rate) to cover minor to moderate one-off expenses? Is there room to stash away more into retirement accounts? Keep in mind that as a business owner, you may have until your tax-filing deadline to make such contributions.

What else changed in your life over the past year? Are there new mouths to feed? Did you receive an inheritance? While many advisors don’t like to bring it up, are you going through a divorce or battling with mental health challenges? These situations, and more, may require a fresh and realistic reassessment of your long-term plan. It’s crucial to approach financial decisions with honesty and humility – life gets off track sometimes, and we can plan for that.

2.      Business matters: How was your 2023?

Did you crush it this year? Did you fight just to keep pace with demand? Were rising interest rates, higher labor costs, and overall inflation eating into your bottom line? Indeed, some industries thrived while others struggled this year. Wherever your enterprise falls on the performance spectrum, there are key items to review with another year under your belt.

Have you thought about structuring your business in a different way to save on taxes and improve personal protection? A Limited Liability Company (LLC) or Limited Liability Partnership (LLP) could make sense if your small business has turned into something larger, or if you simply seek a better risk management strategy. The LLC and LLP constructs can also reduce your taxes with the right planning.

If you want to reduce your taxable income, then investing this year through asset purchases that count as deductible expenses might be a tactic to consider by December 31. Section 179 expensing can be particularly advantageous for certain businesses.

3.      Retirement: Building a better long-term plan for you and your employees

Consider revamping your retirement savings accounts. Rules are tweaked seemingly every year, so taking a fresh gaze at plans using SIMPLE IRAs, SEP-IRAs, and Solo 401(k)s, among others, can optimize how you save for the long haul. Our team has deep experience in helping clients understand the advantages and disadvantages of each type of plan based on your company’s characteristics.

Importantly, if you are self-employed, you have until December 31 to establish a SEP-IRA or Solo 401(k) plan for 2023, but you can make contributions until your tax due date (generally April 15, but it could be March 15 depending on if you are incorporated).

While you’re at it, assessing your employee benefits package to ensure it is competitive and fair helps retain the right talent.

4.      Equity: Consider an Employee Stock Ownership Plan (ESOP)

If your business is in growth mode and you are adding employees, then now may be the time to establish an ESOP. It’s an effective way to diversify your risk while rewarding your workers. Furthermore, an ESOP plan is among the most common ways companies expand their operations since, per the rules, you can borrow money to take on new growth projects using pre-tax dollars.

Later on, when you go about reducing your stake or even divesting your company, you will be glad you had an ESOP since selling shares back to the plan is much less complicated compared to other succession strategies.

5.      Compensation: Estimated tax payments and fine-tuning your salary

It’s prime time to ensure you have paid Uncle Sam his fair share. Run the numbers or sit down with us to tally up what you will likely owe and how much you have paid so far. Of course you want to avoid an underpayment penalty when submitting your return, but you also don’t want to give the Treasury Department an interest-free loan considering today’s high-yield savings options available.

Also, review what portion of your income is subject to self-employment tax and how much of the Qualified Business Income (QBI) deduction you can rightfully take advantage of. If you are incorporated, or an LLC taxed as an S-Corporation, for example, then choosing an appropriate salary to minimize taxes and satisfy IRS guidelines is prudent to do before December 31.

6.      Protection: Do you have proper insurance coverage? (no sales pitch!)

So, there’s never a bad time to refresh your insurance situation. After periods of rapid growth, though, it becomes increasingly important. Our area has seen an influx of folks from all over the country, so we see many entrepreneurs thriving.

That also can mean more risk if you have stale insurance amounts. This requires an in-depth look at many types of plans, including general liability insurance, professional liability coverage, business income insurance, workers’ compensation insurance, and the list goes on. If you operate a tech-focused company, then mitigating risk through data breach insurance could be a good fit.

We aren’t selling anything. Rather, we want to ensure you only have the protection that makes sense for you and your business.

7.      Succession: Think about how your company will live on or how you plan to monetize the asset

There’s no real deadline on this one, but we encourage you to keep it on your radar as the business ebbs and flows. In the event of your death or incapacity, who is in charge? Who are the owners? Procrastinating on this topic is common, but planning now is wise.

The goal is to de-risk and ensure a smooth transition of ownership plan – all while minimizing taxes owed. Being transparent about who will own what under various scenarios also helps reduce strife if an unfortunate event strikes.

The Bottom Line

You probably have enough on your plate with just a handful of weeks left this year. For some busy entrepreneurs, it’s all about triage and prioritizing your time and energy.

We get it, but squeezing in a few hours to optimize your business’s financial plan before the end of the year can save you in several ways come early next year and beyond. We encourage you to schedule time with us to discuss any of these areas so that your business thrives in 2024.