Whether it is the pumpkin spice lattes in your coffee cups or Christmas decorations in your local Costco, when did you realize that we are coming up quickly on the end of the year? Less than 4 months to go until it’s 2025!
Let’s try to make the advancing calendar more exciting than scary by taking these year-end moves to set you up for a great 2025.
Clean Up Your Books
Before we can make plans, including a budget, for 2025, we need to know where we are starting. That means that you need to clean up your books aka your business’s financial records.
Your books are also the first step to preparing an accurate and timely tax return. Want to make sure you get all those sweet, sweet deductions? Get them into your QuickBooks or other accounting software.
Don’t have accounting software? Well, here’s your sign that it is time to get one. QuickBooks offers new users 30% off for the first six months!
A good set of books is the basic fundamental building block of the entire financial strategy for your business. Don’t skip this step!
See Also: The 3 Basic Financial Statements for Business Owners
Year-End Tax Planning
Once you have your books cleaned up, it’s time to sit down with your CPA for some year-end tax planning.
Your CPA can do a trial run on your tax return to see what the potential tax liability is going to be. From here, you can make decisions on things like:
- Quarterly estimated tax payments, which will reduce the penalties and interest for paying your taxes late
- Whether to run those invoices in December or wait till January
- Pay 2025 expenses early
- Make capital investments into your business
- Pay bonuses to your staff
- Cash flow planning and forecasting to make sure you can pay the balance when due (March 15 or April 15)
Here’s a hint though: don’t spend money at year-end solely for the sake of spending money and saving on taxes. Every dollar you spend only saves you about 30-40 cents in taxes. And you are still out the original dollar.
If you were going to spend it anyways, particularly at the beginning of the year, then it may make sense to reduce this year’s taxes even if it means increasing next year’s. But, don’t go buy that new car just to save on taxes unless you really need that new car. And then, if you buy it in the business’s name, make sure it is actually a business expense.
Need a New CPA? Don’t Wait!
Don’t have a CPA or need to a new one? Get one now – don’t wait until tax season when they will all be booked out.
Many CPAs will not even onboard you as a new client during tax season. And if they do, it’s often an automatic extension for you and your business.
It takes a lot of time and energy to get a new client onboarded at a CPA office. They need access to your accounting software and often other systems as well. They need to thoroughly review your books to make sure that items are properly classified so you get the correct deductions and even better, credits. And they have to get old returns, set you up in their tax system, and input the beginning balances on many items.
All in all, not something you want to be doing when you are also producing lots of tax returns for other businesses. So new clients get pushed to times when they are less busy.
Now until the end of the year is the time to hire a new CPA.
Prepare for Tax Season
Even though you have a CPA, there’s still a lot you have to do as a business owner during tax season. This is the period starting January 1 and going through April 15, if not April 30.
In January, you’ll be sending out W-2s to your employees. You want these to be accurate, so take the time now to ensure that everyone is properly in the system – names, email addresses, mailing addresses. This is particularly true for any employees you terminated this year. You’ll also need to include certain fringe benefits and gifts you’ve made.
You’ll also want to check what the cut-off date is for the last payroll. Between Christmas and New Years, there are a lot of banking holidays at the end of December. That often pushes forward the date that you have to submit your last payroll of the year. Making sure that the payroll clears in 2024 will decrease this year’s taxable income.
You’ll also be sending out 1099s to many vendors during tax season. In order to properly deduct these expenses, you have to submit a 1099 for the amounts you’ve paid them. In order to send a completed 1099, you need some information from them – a W-9 that includes their legal name, SSN/EIN, and mailing address as well as tax treatment. If you don’t have these now (you should make it a standard practice to get a W-9 before you make the first payment to a vendor), get them from your vendors before year-end. You’ll thank yourself later.
S-Corps: Review Your Reasonable Compensation
If you are running your business as an S-corp, then you are required to pay yourself, as the owner, a reasonable compensation. Some portion of your income should be in wages; not everything can be taken as a distribution.
Unfortunately, the IRS does not have a bright line rule that tells you that your wage is reasonable. It’s a “fact and circumstances” kind of test that only lawyers could love. Generally though, you have to pay yourself an amount “that would ordinarily be paid for like services by like enterprises under like circumstances.”
You don’t have to pay yourself so much that you are now taking a loss on your net income. Typically, I recommend that for my professional service firm clients (like lawyers, doctors, consultants, etc) that you are the highest paid employee, unless you have a sales person or rockstar producer on variable compensation.
Why Would I want to be an S-Corp?
Many people will push S-corp status on business owners. But it isn’t necessarily the right answer for everyone.
However, one group that it normally does make sense for is professional service firms. Light on assets, high on personal services.
When your company chooses to be taxed as an S-corp, then you can split the profit between wages and distributions. This often has a beneficial tax treatment because distributions skip the FICA taxes and you don’t pay the self-employment taxes either (which is really just the FICA taxes that are withheld from your paycheck and matched by your company). There are some other benefits, but since this isn’t an article on S-corps, I’m not going to go all in on the discussion here. That’s for another day.
Remember though, that now that you are paying yourself, you have to run payroll and complete payroll tax reports (quarterly or annual). You also have another tax return that will be due March 15. Overall, I don’t recommend S-corps for many businesses just because of the added complexity. There are also more compliance rules that are easy to mess up, and that can be very costly.
Review the Year’s Accomplishments
As you go through the year-end process, take the time to stop and reflect on what you accomplished in your business this year. After all, we are always looking forward that we forget to look at all that we did.
How many people did you help? Not just clients or customers directly, but by helping them, how many people were affected?
Were you able to employ people? Give them raises or bonuses? What did they do with their money? Support a family, buy a house, pay off debt?
Did you win any awards? Get a bunch of great Google reviews?
Were you able to grow your business? More customers/clients? More revenue? More profit? More employees? New locations?
One of the important things is to look at what went right and what went wrong. What made the difference? Remember, everything in business is an experiment so what works for one business may not work for another.
Set Business Goals for 2025
Now that we know what worked in 2024, it’s time to set our goals for 2025.
I actually recommend that you don’t start with financial goals here. Start with how you are going to help people in 2025. Are you going to launch new products or services that will help others? Are you going to expand your staff so you can help more clients? Then turn those into financial goals, like revenue and profit.
Also, remember that it isn’t all about growth. Perhaps you want more freedom from work. Taking a long vacation? Want to buy a new house or renovate one you already have? Want to change up the people you are helping? Perfectly acceptable and admirable goals for 2025.
Create a Budget for 2025
Yeah, you knew it was coming. It had to be on the list somewhere, right?
You’ll want to take your goals for the year and create a budget. For most companies, you can use a monthly P&L style to create a budget with both fixed (things like rent) and variable costs (payroll, software expenses, etc).
You’ll break down your revenue goal for the year into the same monthly increments. Unless you want to stay exactly the same as this year, you’ll likely have to account for growth and perhaps even seasonality for your business. For example, lifeguard companies and ice cream shops are going to do a lot more during the summer while personal injury law firms typically have a lot of cases settle just before year-end.
Don’t forget to budget investments into your business in 2025. These would be one-off expenses. Do you need new computers? Maybe you want to take a new leadership course? Invest in new marketing? Add it all into the budget!
See Also: Most Common Employee Benefits
Create the KPIs for a Successful 2025
Once you have your goals and your budget, you’ll be able to create (or update) your KPIs so that you can meet and exceed all those goals.
Key Performance Indicators are a big part of how we manage teams and know we are on track to success. For example, as a law firm, I have KPIs for monthly revenue, billable hours, and new matters. I also have KPIs for marketing activities like LinkedIn posts, blog posts, networking events attended, and ad spend.
By knowing my KPIs and making sure I hit or exceed them every month, I know that I’ll have a great year. And if I slip, I know where I need to make up for it the next month.
KPIs are a big part of the strategic work that Springboard Legal does with clients – identify, set, and monitor KPIs. And then build those into the compensation plans for the employees of the business.
Sanity Check on the Budget
One thing that I always recommend that you do during the budget process is to have a sanity check. Are these goals reasonable?
I worked with one logistics company that had big plans for the next year. So I created a budget that would meet those goals. And then I went to the sales director and said “can you do this?” He just laughed at me. It was completely unreasonable – we didn’t have the staff to do it and we couldn’t hire enough to meet that target. We had to scale back the big lofty goals.
Not only do you need to run a reasonableness test, you also have to ask yourself if you want to work that hard. When you are growing 100, 200, or 500% in a year…. that’s hard. It’s a lot of work. Not everyone is up for it.
I would rather you pick goals and establish budgets that are in line with how hard you want to work. This will help prevent burnout and help you establish sustainable growth.
Remember, periods of fast growth are the riskiest times for companies. You have to invest in that growth, through advertising, systems, and people before the revenue arrives. Which means if you do not have solid budgets, KPIs, and processes in place, you can easily over-extend yourself and destroy your company.
At the same time, remember that you can cut expenses only so far. At a certain point, you starve the business of what it needs to survive or thrive. Being too stingy on pay means that employees will look for new jobs; if they don’t have the resources to competently do the job, then it will take longer or will be done at a lower quality. Cutting advertising too low and you won’t get new clients coming in the door.
There’s a happy medium and you won’t always get it right. That’s OK. Just learn to recognize it quickly and then be able to correct it ASAP.
Figure Out What Laws are Changing
The first of the year is a common effective date for new laws. You’ll want to check out the laws in your jurisdiction that may be changing:
- Minimum Wage
- Paid Time Off
- DOL Exempt Wage Base
- FTC Advertising Rules (and state advertising laws too)
Just to name a few. And they’ll probably be more as we get to the end of the year. Be on the lookout for news about our year-end employment law review too! Or just sign-up for the newsletter and follow us on LinkedIn.
File Your Beneficial Ownership Information Report
Oh boy, did you forget about the BOI you have to file this year? Under the Corporate Transparency Act, businesses have to file a report disclosing owners, officers, and other key people to FinCEN. Your deadline to file the BOI for an existing company is January 1, 2025.
So let’s go ahead and get that out of the way. And make sure that you are not hit with penalties for not filing.
2025 is Going to Be Awesome for Your Business
When you focus on the fundamentals of business and set yourself up to start off strong, you are more likely to have a great year.
And if all this budget, KPI, and tax planning talk has you itching, maybe you should be calling Springboard Legal to see if we should be working together. After all, Kimberly DeCarrera can manage the budget and KPI process for you and even guide you through the goal setting process. It’s all part of the Springboard Strategy Sessions and Fractional CFO that we offer clients.