This month’s article is for any small business owner, individual or family. Do you plan ahead or do you react to the financial events that impact you or your business every year?
 
After 44 years in banking, I am absolutely convinced that annual financial planning is one of the fundamentals of a successful and profitable business. Individual or family financial planning is equally important.
 
I recommend the following steps to solid financial planning.  This process should begin after the end of third quarter or September 30^th for the small business owner and at least December for individuals.  If you haven’t started then begin the process now and plan to plan more in 2019!
 

1. After the end of September, begin preparing a budget for the new year utilizing the year to date income & expenses; debt service for business/personal loans, credit cards, etc.; review personal wages and any other sources of income. Utilize QuickBooks or similar software and sometimes a 13-column journal is useful. Project year-end income and income tax liability in time to make any adjustments for under payment of taxes before year end. I sometimes project my federal income tax liability and/or consult with my tax advisor. Also, plan for any major purchases needed or anticipated for the end of the year or following year. November and December are months to develop work, planning calendar for next year.

2. During late December and early January, start assembling supporting information to be prepared to file your tax return.  A tax preparation workbook is very helpful.  Consult your tax advisor. Final adjustments to your new budget should be completed before the end of January. This is also a good time to prepare an annual personal financial statement that benefits you and your banker. Compare annually to the previous year and hopefully you will see improvements over the years to come.

3. Provide tax information to your tax preparer by February 1 and if you prepare your own, complete by end of February. Don’t file until due if taxes owed or file quickly for any tax refund. Adjust tax withholdings for your W-2 income if needed. I personally prefer to not withhold excess amounts of federal and state taxes and to increase personal cash flow instead of the government holding it and refunding many months later.

4. If tax returns are prepared by a tax advisor, review the completed return and ask questions if you don’t completely understand. Small business owners need to remember your tax return only reflects what is taxable.  Be prepared to explain to your banker the differences and if you don’t know, then find out. Be financially literate!

5. On a monthly basis, review your income and expenses. Quarterly, do a detailed review. This may result in adjusting budget for the balance of the year. Monitor tax payments closely and be timely in any quarterly remittance due.

6. The process begins again at the end of the third quarter in 2019.  In addition, consider developing a strategic plan for your business and/or establish personal goals that you and your family hope to attain.  Maybe payoff consumer debt, establish college and vacation funds, plan vehicle and other major purchases. Act, don’t react, to major financial decisions.