7 Questions to Ask Before December 31
Year-end business planning is your opportunity to look beyond what happened this year and decide what needs to happen next.
For business owners, a productive year-end review should cover more than taxes. It should help answer seven important questions:
- Did the business perform as expected?
- Where did we make or lose money?
- What will our cash position look like in the next few months?
- Are there tax decisions we need to make before December 31?
- Are we prepared for upcoming investments, hiring, or financing needs?
- What should change next year?
- What numbers should we be watching more closely?
You don’t need every answer before meeting with your CPA. That’s part of the reason to have the conversation.
Download the Business Year-End Tax Checklist.
7 Important Year-End Business Questions
1. Did Your Business Perform the Way You Expected?
Start by comparing your year-to-date results with your original budget, forecast, and prior-year results.
Look beyond total revenue. Review:
- Revenue compared with budget.
- Gross profit and profit margins.
- Operating expenses.
- Payroll and labor costs.
- Accounts receivable.
- Debt and financing costs.
- Cash on hand.
A business can increase revenue and still experience declining profitability or tighter cash flow. Looking at the numbers together gives you a better picture of what is happening inside the business.
The goal isn’t simply to ask, “Did we make more money?” Ask, “What caused our results, and is it likely to continue?”
2. Where Is the Business Making Money?
Year-end is a good time to look beneath your company-wide profit number.
Which customers, projects, services, locations, or business lines produced the strongest results? Which consumed more resources than expected?
For example, a growing revenue stream may look successful until you consider the additional labor, materials, overhead, or management time required to support it.
Understanding what drives profitability can help you make better decisions about pricing, staffing, customers, and growth in the coming year.
3. What Will Cash Flow Look Like in the Next 90 Days?
Profit and cash aren’t the same thing.
A profitable business can still run into cash problems when customers pay slowly, expenses increase, debt payments come due, or the company needs to fund growth.
Before year-end, update your cash flow forecast and consider:
- Expected customer payments.
- Outstanding receivables.
- Payroll and bonuses.
- Tax payments.
- Debt obligations.
- Equipment or technology purchases.
- Insurance and other annual expenses.
- Planned distributions to owners.
Adam Allan, CPA and owner Lang Allan CPA, recommends monitoring cash alongside profitability because growth itself can put additional pressure on cash flow.
4. Are There Tax Decisions That Need to Be Made Before December 31?
Tax preparation tells you what happened. Tax planning gives you an opportunity to consider what you can still do.
Depending on your business and tax situation, year-end planning may include reviewing taxable income, equipment purchases, depreciation, retirement contributions, owner compensation, charitable giving, estimated payments, and the timing of certain income and expenses.
Tax laws have also changed, so strategies that made sense in previous years may deserve another look.
Don’t make a major business purchase simply because it may provide a tax deduction. The tax impact should be considered alongside cash flow, financing, operational needs, and your longer-term business plan.
5. What Is Changing Next Year?
Your next budget shouldn’t simply be this year’s numbers with a percentage added. Consider what you already know will change.
- Are you planning to hire?
- Raise wages?
- Purchase equipment?
- Add a location?
- Enter a new market?
- Increase prices?
- Take on debt?
- Lose a major customer?
- Add a significant customer?
Build those changes into your forecast. This can help you see the financial impact of a decision before you make it and identify where you may need additional cash, financing, people, or resources.
6. What Should You Do Differently Next Year?
Your financial statements aren’t just historical records. They can help you decide what comes next.
As you review this year’s results, ask:
- What should we stop doing? Maybe a service isn’t profitable enough, a customer requires too many resources, or an expense isn’t producing the expected return.
- What should we continue doing? Identify the customers, services, investments, and operating decisions contributing to healthy growth.
- What should we start doing? That might include improving collections, adjusting pricing, monitoring margins more closely, creating a cash reserve, or reviewing financial results more frequently.
Turning your year-end numbers into specific decisions makes the planning process much more valuable.
7. Which Numbers Should You Watch Next Year?
You probably don’t need a dashboard with dozens of KPIs. Choose a handful of numbers that help you understand what’s changing in your business.
Depending on the company, those might include gross profit margin, cash on hand, accounts receivable days, revenue per employee, customer profitability, backlog, or another industry-specific metric.
The right numbers should help you spot a problem or opportunity early enough to respond.
Bring this to a Year-End Planning Meeting
To make the conversation more productive, gather your current profit and loss statement, balance sheet, cash flow information, accounts receivable and payable reports, payroll information, debt balances, planned purchases, and your preliminary budget or forecast for next year.
Also bring your questions and download the Business Year-End Checklist.
Tell us about changes you’re considering, even if you haven’t made a final decision. A planned hire, equipment purchase, financing decision, expansion, ownership change, or large distribution could affect both your business and tax planning.
Frequently Asked Questions
What should a business owner review before year-end?
Start with your profit and loss statement, balance sheet, cash flow, accounts receivable, debt, payroll, projected taxable income, major purchases, and next year’s budget. Then identify significant changes expected in the coming year.
When should I meet with my CPA for year-end planning?
Ideally, meet before December, especially if you’re considering major purchases, compensation changes, retirement contributions, investments, financing, or other decisions that could affect your tax or financial position. Some planning opportunities become more limited after December 31.
Is year-end business planning the same as tax planning?
No. Tax planning is one part of year-end business planning. A complete review also considers profitability, cash flow, budgeting, financing, staffing, capital investments, and your goals for the coming year.
How can a CPA help with business planning?
A CPA can help you interpret financial results, identify trends, project taxable income, evaluate cash flow, assess the financial impact of major decisions, and develop forecasts for the coming year.
Don’t Just Close the Books. Use Them.
By year-end, you have months of financial data telling you what worked, what didn’t, and where your business may be heading.
Use it.
A year-end planning conversation can help turn those numbers into decisions about taxes, cash, profitability, investments, and the year ahead.
Before December gets away from you, contact us to start your year-end business planning conversation.