Summer is over and as fourth quarter moves closer, small business owners find their thoughts turning more toward year-end results than vacation destinations.
The fourth quarter of any year is an important time for small business owners. That’s when you need to be doing year-end tax planning and looking ahead to next year.
Whether you do it yourself or with the help of a CPA, don’t put off fourth-quarter planning. You could end up paying a heavy price — and not just in taxes — if you don’t look at your books and think about how your company will fare for the rest of 2010 and into early 2011. By looking at your business over a longer period of time, you can make smarter decisions about spending and running your business.
Looking at your business performance over the long term is the best way to plan for what’s ahead. Accountants look at balance sheets as well as income statements for the past few years. Balance sheets show a company’s cash flow, and income statements help determine whether your business is likely to turn a profit. For instance, your company might show a significant profit by year’s end, but if the first quarter usually is a slow period (shown by cash flow), don’t be throwing your money around. Instead, put it aside for those lean days that are sure to hit in early 2011.
Fourth quarter is a good time to think about capital spending, too, and whether you can benefit from certain tax breaks, like Section 179 deductions. Those deductions allow you to deduct, up front, the cost of certain kinds of equipment bought and used during the tax year rather than depreciating the purchase over time. You’ll also want to keep in mind what you’re cash flow is like when you’re making capital-spending decisions. Forgoing the tax break in order to have the cash on hand for the lean days of first quarter might be the smarter thing to do.
If you’re diligent about contributing to your retirement plan, take a look at your financial statements to decide how much you can contribute for 2010. Fourth quarter is also a good time to make any plan changes you might be considering and still possibly benefit from those changes in the current tax year.
As the summer heat starts to dwindle, consider turning up the heat on your fourth-quarter business review. It just might save you some cold, hard cash.
Frances Starr, Director of Sales & Marketing for Alert Communications. Alert Communications is a 24/7 bilingual inbound call center, specializing in professional attorney answering, virtual receptionist, Spanish answering and business answering solutions.