5 Quick Business Audits to Tackle as You Ring in the New Year
by Dan Wywrot, on Jan 2, 2018
We all know about personal New Year’s resolutions. Go to the gym three times a week. Quit or cut back on smoking or drinking. Carve out more quality time for the family.
January is also an ideal time to implement new procedures and strategies to enhance and streamline your business operations in ways that will benefit the bottom line.
1. What’s in your budget? Dive in.
You should be budgeting for the new year before it kicks off. The process of reviewing prior budgets (and comparing them to actuals) often identifies new key performance indicators (KPIs) to track, which may call for changes in how you record revenue and expenses.
Update your chart of accounts
Remember, at the beginning of the year you have a clean slate, accounting-wise, so it’s the best time to make changes to your revenue and expense categories. The changes can be eye-opening; suppose, for example, you have reason to believe one specific revenue stream is outperforming the others, but you can’t see it in the numbers because you had it lumped in with several other streams. Break out those individual streams, and it may give you a better idea where to invest your marketing resources.
Your customers and vendors are likely planning their budgets now too, so the beginning of the year is a good time to renegotiate vendor contracts and adjust (raise?) your prices. (Depending on where you are located geographically, and/or the particulars of your customer base, it may make sense to implement price increases at the beginning of peak season, but it’s still a good idea to announce them at the start of the year.)
Speaking of vendors and customers, if you purchased new bill payment, invoicing, or accounting software or are thinking of switching the apps you use, it’s best to launch early in the year (even better, launch with the new year!) And, don’t forget to communicate any client-affecting changes to clients early and often.
2. Cash vs. Accrual: Time to make the switch?
If you have been contemplating other significant changes to the way your business operates financially, now may be the time to take the plunge. For example, if you're switching from an accrual to a cash basis of accounting (or vice versa), you may need to restate previous years, so kicking off the year with those new methods is clearly a great time to implement the new normal.
3. New year, new benefits
January also is a convenient time to make any planned changes to your payroll system, benefits, employee designations, etc. And have you thought of this: many small business owners take draws or pay themselves as contractors, but after consulting with a tax advisor, realize that putting themselves on payroll (at a salary appropriate for the work they perform), their personal tax burden decreases due to lower or no self-employment tax.
4. What are you tracking? Fill in the gaps.
Finally, the end of the year—and the clean slate that comes with the new year—is a good time to take a step back and reflect on how well your financial tracking systems are serving you. Among the telltale signs that something is amiss: you look at a visualization or metric from your data, and you don't know in specific detail how every part of it is calculated, or what a fluctuation (or plateau) likely means for your business. Or you have no feel for your cash flow, as you don't have a good pulse on collecting accounts receivable or when your bill payments go out the door. You may decide it’s time for an outside audit of your systems, or you may feel confident that you can correct the problems internally. Either way, there’s no time like now.
5. Taxes: Get a quick win early in the year
Like everyone else, you want to make your tax returns as easy as possible to file. One question to resolve sooner rather than later is, did we change anything in our accounts over the past year that will throw off our tax accountants? If you're working with the same tax advisor(s) as in the previous year, they're going to look back at that prior year return. And they're going to be used to looking in the same places for accounts, general-ledger account numbers, etc.
If they discover that everything has changed—or is in two pieces because you switched up your chart of accounts during the middle of the year—they're going to be thrown off. Not only will that give both of you headaches, it will cost you more because they will have to spend extra hours with you getting the numbers back in place. Better to identify this potential snag ahead of time; your accountants may be able to advise you how to clean up the inconsistencies before they start billing hours.
If you want to strategize around your bottom line, always run your ideas by your tax accountant to make sure they are effective and realistic! After all, they need to sign off on your returns too.
With that, welcome to 2018: a new year, a clean slate, and a new beginning for a better and more profitable business!