4 Steps to Evaluate Your Business’ Yearly Finances
The year is coming to an end and as a small business owner, it is time to begin developing a new financial plan for your business. Why? A new year is on the horizon and that means there’s an opportunity to set new financial goals. However, before you can begin setting new goals and planning your finances, there are a few steps that you need to take to evaluate your business finances.
Read This: Do You Need to Consult An Accountant?
Organize Your Finances
If you want a clear picture into your business’ finances, the first step is take a look at your cash flow. How much revenue are you generating? What are your expenses? If you are not already working with an accountant, you can use a software such as Quickbooks. You need to gather your bank statements, your receipts from expenses and invoices. Then organize this information so that you get an understanding of your finances for the year.
Where Does Your Business Stand Financially?
Now that you have organized your financial statements, it is time to analyze your data. You’ll need to prepare a balance sheet, income statement and cash flow statement. These three documents will show you how your business’ cash flow increased or decreased throughout the year. They will also share where the money was spent.
Your balance sheet will provide you with an overview of your business’ financial health. The balance sheet includes your assets, liabilities and equity.
Next, your income statement will show your profits and your losses. For this sheet, you will prepare an itemized listing of all of your revenue and expenses for the year. This statement will help you understand your profitability.
Finally, your cash flow statement will show you where your money has been spent. For the year, you will see your cash flow from revenue and expenses; assets purchased and sold; and finally financially activities–loans taken, loan repayments as well as shareholder investments and/or distributions.
Evaluate Your Goals
What business goals did you create at the beginning of the year? Which goals did you accomplish? It’s important to answer these questions because you need a clear understanding of how you are effectively planning your business for success–or not.
A huge part of evaluating your goals will also be identifying the strengths of your busines in this past year–what allowed you to be successful. In addition, evaluate goals that you were unable to achieve. Why were you not able to achieve these goals? What can you do differently in the new year?
Tackle Your Taxes
Analyze and evaluate your tax strategies. Businesses–large and small–use tax strategies to consistently reduce their income tax payments and save tons of money in the process. An accountant can help you determine which tax strategy is right for your business.
The steps listed are merely the foundation to great financial planning for your business. Once you’ve completed these steps, you will be in a better position to set greater goals for your business’ success and carry out your plan of action with confidence.