6 Financial Areas to Check in a Business at the Start of the Year
The maxim “The greatest way to forecast the future is to create it” has definitely crossed your mind. That is particularly pertinent to your business. Beginning a new year is the ideal moment to stand back and evaluate your financial status. Below are six financial areas you should review as you head into 2023. By staying on top of these critical areas, you’ll be better at achieving your goals for the year.
1- Analyzing Your Cash Flow
Start by analyzing your business’s cash flow. This will give you a snapshot of your company’s financial health and help you spot any potential trouble. You’ll want to track your monthly income and expenses to see how they compare. Are you making more money than you’re spending? If not, you’ll need to take corrective action ASAP.
You should also keep an eye on your Accounts Receivable (A/R) and Accounts Payable (A/P) balances. A high A/P ratio means you need to get paid faster, while a high A/R balance means you’re not being paid at all!
2- Evaluating Your Balance Sheet
Take a look at your business’s balance sheet. This document shows your company’s net worth at a specific time. It lists your assets (what you own) and liabilities (what you owe). If your liabilities are higher than your assets, you’re in the red, and you’ll need to take action to fix this. You may need to borrow money, sell assets or find other ways to bring in more cash.
If your assets are higher than your liabilities, you’re in the black and in a much better position. You’ll still want to keep an eye on your weaknesses, as they can change over time. But this is a good starting point for evaluating your business’s financial health.
3- Updating Your Records
A fantastic opportunity to examine and update your company records is at the beginning of the year. Make sure you have the most recent information on your business name and address, EIN or SSN, federal and state tax information, business insurance policies, vendors and customers, bank account and routing number, and credit card information for business expenses.
4- Setting Goals and Creating a Budget
The creation of a budget and the setting of goals are two of the most crucial things you can do for your company.It’s like creating guardrails to keep your finances from veering wildly off course—especially when it comes to tax season.
It’s more than just setting goals. You need to create a plan outlining each step required to reach them. You’ll also need a budget that tracks your financial objectives and helps you determine where you can save or invest more money.
Be sure to include income, expenses, and investments in the budget. Factor in both fixed costs (rent, insurance, salaries) and variable costs (travel, supplies). This will help you identify any unnecessary expenses that need cutting or areas where you could be spending more. As a result, it’ll give you greater clarity on how best to use your resources throughout the year.
5- Reviewing Your Insurance Policies
It’s crucial to make sure you have enough insurance because it’s a requirement for conducting business.. When reviewing your policies, ask yourself the following questions:
– Are my coverage levels appropriate for my current needs?
– Are there any gaps in coverage that I need to fill?
– Are there any discounts or other benefits I can take advantage of?
– Have the prices increased compared to previous years?
If you’re unsure how to answer these questions, speak to an insurance professional who can help ensure you have the best policy for your situation. This can save you money and stress in the long run.
6- Preparing for Tax Season
Tax season preparation is the sixth and final financial area you should check at the start of the year. Yes, you should think about it now. It’s never too early to get a handle on your taxes to ensure that you are compliant with all laws and prepared to make any necessary payments.
The first step is to double-check that your records are accurate throughout the year. This means tracking income, expenses, payroll, and other taxes throughout the year and ensuring they are all correctly reported on your tax return. Review any changes to the tax laws that may affect you and your business in the upcoming year so that you can make any adjustments if needed.
Finally, create estimates of your tax payments for each quarter—this will ensure that you have funds ready when payment deadlines arrive. With some preparation, you can go into tax season with a plan and avoid surprises!
So, before you went any further this year, make sure you take the time to review these six key financial areas in your business—you’ll be glad you did!