As you close out your business year, there are a few financial decisions to consider before the new year begins. We’ve put together a list of questions to ask yourself to help you weigh some year-end options:
Do I want to pay my employees a bonus?
Do you have the cash to pay it? Going into debt for this is never a wise use of debt.
What’s the purpose of this bonus? Is it a reward for a good job, meeting sales goals, or a sharing of the profits?
What is the amount of the bonus? A week’s wages, a percentage of something, based on seniority, etc.? Do you have a plan for the amounts so each year is consistent and based upon a structure (this does not need to be shared with your employees)?
Should you pay this in December or January? Which is more advantageous for your business? Your employees? Your taxes?
Bonuses, cash, AND gift cards must all be reported on an employee’s W-2.
Do I want to pay myself a bonus or distribution before year-end?
Depending on your tax structure, this may or may not be a good idea – or it may not matter.
If you don’t have the cash, don’t pay it!
What is my estimated net income this year?
If you’re a cash-basis business, do you need to pay some expenses in December or wait until January?
What are the tax consequences of this income or loss?
Do you need to set aside cash for tax payments in January and April?
Should I make an extra effort to collect on invoices or push for additional sales?
Many times, businesses want to pay all of their outstanding bills in December. This is a good time to remind them of their balance due.
If you’re a cash-basis business, your income is based on collections. How does collecting now affect your net income?
As a side note: if you are cash-basis, receiving payment in this year but not depositing it until next year still puts the income in the current year.
If your accounting records aren’t in good shape, it’s difficult to make these kinds of decisions. While it may be difficult to get this year's records caught up in time to make decisions before December 31, make it your New Year’s resolution to be in a better position this time next year.
Want some help with your accounting or managing your cash flow in 2021? We’re here for you – schedule a complimentary call now.