As we hustle toward the end of 2017, and enter the middle of the holiday shopping season, one of the last things that is probably on your mind is creating a to-do list for your business finances. While you are certainly keeping an eye on your financial statements, reviewing your budgets, cash flow situation, and customer requests, even the most adept multitasker can't be everywhere at once.
Not taking this time, however, can leave you under-prepared for next year, and leave you more prone to mistakes and errors that can cost you time and money. As an entrepreneur you are already pulled in a lot of different directions, but taking some time out to prepare your finances for next year can pay off in big ways.
Small businesses are often identified as a major driver of economic growth, so it makes sense that some of the potential regulatory changes coming down the road might impact your business. One high profile item are the potential changes that are coming to the tax code, and the implications that these changes may have on your business, but that is just one of many things you should consider for your business as we wrap up 2017.
Let's take a look at some of the items that should be on your business to-do list to set yourself up financially for 2018:
1. Figure out if your activity is a business or a hobby.
You might know for certain that you are running a business, especially if it has been up and running for several years, but what if you are starting a new business or are doing some work on the side? A question I always entrepreneurs that I work with is whether they are running a business, or do they have a hobby?
The IRS provides guidelines as to what specifically classifies your activity as a hobby or a business, which can lead to some unpleasant surprises comes tax time if you aren't careful in the form of expenses you were expecting to deduct, but can't.
2. Run your numbers.
The end of year time period can feel like it passes in a blur, especially if your business or side hustle is seasonal in nature. Even if you are extra busy, however, that is no excuse to not have a solid idea of where your business is financially. Of extra importance for the small business owners I work with is their cash situation -- you definitely don't want to start 2018 strapped for cash.
Cash is king, and running these reports only takes a few minutes, so do yourself this favor and get a handle on where you are before the year end crunch hits.
3. Clean up your books.
After you have run your reports and had a look at how your business is performing you might notice some of the following items:
- Passed due receivables
- Incorrect vendor information
- Missing documentation
As tempting as it might be to let some of these things slide, the fact of the matter is that sloppy bookkeeping is something that trips up businesses of all sizes. Take a few minutes to address these issues, and move into 2018 with better organized financials.
4. Make sure you organize your freelance paperwork.
Freelancing is a fast growing part of the economy, and provides a lot of people with the opportunity to dip their toes into the entrepreneurship pool. In fact, according to a poll conducted by Upwork and the Freelancers Union, approximately 55 million Americans participated in some sort of freelance activity in 2016.
If this describes you and your side hustle, be sure that you have been keeping track of your freelance incomes and expenses (remember those hobby rules), and have a person to contact for your 1099 to help you file your taxes.
5. Prepare for tax season.
Taxes are never an especially fun topic to discuss, but they are even more important with the coming changes to how business income is treated. Regardless of whether you are a fan of the proposed changes or not will not change the reality that, at the very least, some sort of change is coming to how you and your business will file and pay taxes.
Schedule a call with your CPA or other tax professional to help you start planning for this coming tax season, and make sure you have (or have a plan to gather), the following:
- 1099 information
- Charitable contribution information
- Any support for business expenses you will need
The end of the year is a business and frenetic time, and can feel ever more stressful for entrepreneurs and small business owners. Despite how busy this time of year can be, taking a little bit of time to review your financials will set you up well for next year.