Gary Romano, President & CEO, Civitas Strategies, has spent most of his career in and advising small businesses.
Many small-business owners dread this time of year. As the leaves turn and the weather gets colder, the year ends and tax season begins.
As a small-business owner myself, I understand why some might have this sense of dread. But, through my experience coaching leaders of small and even micro businesses on how to flourish, I’ve learned a few valuable strategies that can help owners navigate this time of year.
Pay attention to your estimated taxes.
In my experience, many business owners avoid paying estimated taxes throughout the year. While this may save you money now, if you owe later, you might have to pay a penalty. If you’re not sure how much you should pay, there are a number of online calculators that can help. Another option is to set aside a portion of your profits as estimated taxes. You can pay them by mail or online, and if you do set up an online account, you can also check how much you have already paid to ensure you are keeping up.
Consider your retirement plan.
If you don’t already have a retirement plan for your business, setting one up could provide tax advantages. Contributions made to a qualified retirement plan on behalf of the business owner and employees may be tax-deductible, which means they could save you money now and build for your future. In my experience, most small-business plans are easy to set up online and affordable. There are many options, and if you’re not sure what to invest in, I find that most companies have online systems that can offer you advice based on your savings and risk tolerance.
Review your tax deductions.
It can be worth the effort to review the things you need for this year and next. Are there items you should stock up on now? Is there anything you are renting or leasing that you might want to buy? I’ve found that a great way to identify these costs is to look through your business accounts and credit cards for reoccurring costs, especially those you are paying monthly that could be paid upfront and moved into this tax year. To be clear, you need to make sure you are not spending frivolously. Spending $5,000 on something you really don’t need to save $1,200 in taxes is penny-wise and pound-foolish.
Make a plan for paying off debt.
If your business has any debts, this could be a good opportunity to make a plan for paying them down to help save on interest later. There are generally two ways people start reducing their debt: either paying off the smallest pools first or the ones with the highest interest rate. Either is a valid approach; I recommend choosing the one most likely to help you build and keep momentum in paying it down.
Carefully review your personal spending.
While you don’t want to put a personal expense on your business, I’ve found over the years that some business expenses can inadvertently end up on your personal accounts. I check my credit card, checks and withdrawals from my accounts to make sure none are business expenses. Invariably, I find a few that need to be included in the costs of my business to reduce my tax liability.
Set yourself up for success next year.
I find most non-retail businesses have a respite at the end of the year. This time could be spent preparing you for next year. There are things I like to do every December.
First, consider how you can further support your staff. Are there educational opportunities, training or leadership opportunities that could build your team and your business? Are there ways to advance your culture through team-building activities, mentorship or other interactions? Can you provide new benefits that will relieve team members’ worries or help them feel valued? Investing in your people can pay dividends through improved retention and recruitment.
Second, take time to step back and review your business strategy and goals. As yourself: What areas of your business do you want to grow or improve? What new opportunities exist you may want to pursue? Get clear on your direction so you start the new year focused.
Third, reflect on your customer avatar, a general representation of your “ideal customer.” As small businesses evolve, so too do target customer pains and gains. Reexamine your ideal customers. Have their behaviors changed? Are there new customers you can serve or old ones who are no longer relevant? Once you have answered these questions, you can better align your services and products to meet customers’ needs.
As 2023 is winding down, there is still time. It might make you anxious at first, but taking the time to look at your business now can help you find ways to manage your costs and set up you and your team for a successful year ahead.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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