10 Year End Financial and Tax Tips for Your Small Business

1. Bank Accounts

Review your outstanding cheques and write off any cheques that have not been cashed for 6 months, as they are no longer valid (unfortunately banks often tend to screw this up, but chances are that somebody who has not cashed a cheque has either lost it or is dead).  Assuming your bank accounts have been reconciled , this will add to your available cash balance (sort of like a Christmas bonus). 

2. Accounts Receivable

This is a good time to thoroughly review customer receivables and write off uncollectible amounts.  In addition to cleaning up your list (who doesn’t like cleaning?), this will help reduce your taxes payable as the write off is reflected as a bad debt expense.  Amounts should be submitted to a collection agency and in the event that you ultimately collect the amounts you can show it as a bad debt recovery.  This is also reduces stress levels as you don't have to see the names of the deadbeats when you are reviewing the list in the new year.

3. Inventory

Similarly all items in inventory should be reviewed and older and/or obsolescent items should either be written off or reduced to the amount that you think they are worth.  If you have a bunch of VHS tapes lying around, you can probably safely write these down to $0.   By reflecting a loss on your inventory you will reduce your tax liability.

4. Fixed Assets

Take a cold hard look at your business fixed assets i.e. computers, furniture, equipment etc and get rid of anything that is reflected on your books but you are no longer using (do you really need that 5 year old laptop?).  This will allow you claim a terminal loss as long as the proceeds do not exceed the net book value.  And less clutter can go a long way to improving productivity.

5. Credit Cards/Line of Credit:

If cash flow allows this is the perfect time to pay down all your credit cards (in all honesty any time is a perfect time to pay down credit cards).  This will help reduce interest paid on outstanding balances which is often excessive due to ridiculous interest rates.  If you are not able to pay down your credit cards, you should consider speaking to your bank about getting a line of credit.  Interest rates are usually significantly lower and can lead to substantial savings.

6. Bonuses

If the net income of your business exceeds $500,000, you should consider paying yourself or family members (who are of course employees) a bonus for the excess amount.  This will allow you to take advantage of the small business deduction that applies to Canadian Corporations with net income less than $500,000.  It is also a good time to pay other bonuses to reduce your taxable income rather than deferring them to the New Year.  And it makes for happy employees.

7. Computer Hardware

If you have excess cash and are just itching to use it, you should consider purchasing a new computer or electronic data processing system.  Since this is 100% deductible to the end of February, 2011 it can greatly reduce your taxes payable.

8. Accounting/Filing:

This is the fun time of year where you get to put all your receipts, bills, invoices and expenses in order.  If you receive electronic documents you should either print them or save them in an organized fashion in an accounting folder.  Organize all your receipts by category eg. telephone, insurance, gas, food etc.  Also ensure that you have all your business bank statements for the year.  If you do not use an accounting software for your sales, your accountant will greatly appreciate a sales summary, preferably in excel. 

9. Financial Statement Analysis

Your financial statements are your report card for your business and let you know how you have done.  Take a look at how much you sold, and how much it cost you to sell it.  Assess if you are spending too much or not enough, and if you are you charging your clients or customers enough (or possibly too much?).  The same goes for suppliers.  You can also take this time to see if another cell phone provider will gouge you less or if you can get a better deal with your insurance provider.  Service providers will often reduce rates with a simple phone call and a mild threat.  As an aside, if you do threaten to leave, however, always makes sure you have a backup. 

10. Budget

Once everything is order,  you should start planning for next year by preparing a small business budget which will allow you to assess your cash flow requirements and estimate your profitability.

As we (and our mothers) invariably wonder where the year went, and gear up for the holidays, this is a great time to organize your business finances, reflect upon (and pat yourself on the back for) your accomplishments, learn from your mistakes and prepare for next year.

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Ronika Khanna is a Montreal based accountant helping small businesses achieve their financial goals.  Please sign up to receive articles pertaining to small business, accounting, tax and other topics of interest to business owners.  You can also follow her on Facebook or Twitter.