I often say that profitability is intentional. I love the end of the year because regardless of whether I met this year’s goals or not, I get to plan and dream of what could be in the upcoming year and put the plans and actions into motion to make those dreams happen.
This is the final installation in my series on Preparing for a Profitable 2022. This blog will list 5 things you should consider doing at the end of the year. Each of these things will help you either save money, make money, or minimize the risk of you losing money.
1 – Check Your Contractors and W-9s
If you hired contractors (non-employees) in your business and they performed more than $600 worth of work for you in a calendar year, you need to collect a W-9 from those contractors. While you may or may not need to file what is called at 1099 for the contractor, I recommend having a 1099 for your records. Why is this needed, you may ask? If you are the contractor, without a W-9 form it could be difficult for a business to claim your services when they complete their required IRS forms. Furthermore, it could be hard for you to verify your income should the IRS have questions. Learn more about W-9s in my blog HERE.
2 – Are You Structured Correctly?
The end of the year is a good time for you to review the legal set up of your business with a professional. If you have been side hustling or freelancing and haven’t set up a legal business entity yet, it is a good time to ensure your business is protected. Not forming a separate legal business entity means you are by default a sole proprietor, which means you have unlimited liability. Translation, if anyone sues your business, they can come after your personal assets. In term of finding legal assistance, there are many options for all budget sizes. Send an email to info@ltaylorassociates.com if you would like our current recommendations.
3 – Are You Set Up to Minimize Taxes (legally)?
The end of the year is a great time to check in with your tax professional to see if adjustments need to be made in how you file taxes. Be aware that your tax professional will be able to do their best work if your financials are accurate and up to date.
Based on your business’s growth and overall household situation, it may be time to update how you file. For example, perhaps you can best minimize your taxes by having your LLC file as an S-corp instead of filing as a sole proprietorship.
It might be a good time to check in with your tax pro and get an estimate of how much you might owe in taxes so you can be prepared. There may be steps you want to take before the year ends. For instance, if you made considerably more than you anticipated, you may need to take action before the end of the year or early next year to minimize how much you will owe.
5 – Gather the Docs
If you have been in business for any length of time, you know it is time to get all your documents ready for taxes. This includes:
- Supporting documents for all business expenses (digital or hard copy—but we prefer digital)
- Bank statements
- PPP and EIDL expenses – If you accepted any Federal money during the course of the pandemic you will need to detail how it was spent. Even though you may have received forgiveness, the government reserves the right to audit any recipients in the future.
- Any owner contributed expenses – Did you pay for any business items from your personal account? Don’t forget to include these as to not do so will cost you money.
- Accurate financial reports
5 – Plan and Dream Your Best Year Ever
This step is my favorite and is so much fun. I like to make a low, medium and high estimates of what the next year will bring. Just be sure to have realistic plans that are grounded with numbers.
Need help taking the steps above? I’m here for you. As a business solutions expert, I have helped dozens of businesses untangle complex issues and clarify a path to greater profitability and less confusion. Let’s schedule a Discovery Session to start the conversation.
If you enjoyed this content and want more of the same, check out my free guide Do This, Not That: 5 Things Keeping Your Business From Reaching Its Fullest Potential where I discuss common barriers to profitability that I observe among most small businesses (and what to do about them).