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Year-End Planning. Now? Yes, Now!

Year-End Planning. Now? Yes, Now! - BQE Software

I know what you’re thinking! It’s July. How can I do my year-end planning now?

It’s too soon!

Or is it?

Most CPAs I know start asking for updated books in November so they can do their tax projections for year-end. It falls in line with their timing. In September they are handling the business returns that are on extension. Then in October it’s the personal returns that were on extension. Now it’s November and we can breathe and do some projections.

The business owner is happy to get the projections at all, but what can be done about them? The CPA can come back and say that they didn’t pay enough salaries, or they simply had much more income for the year than expected. This is good news, but if the business owner needs to come up with $30,000 to pay in additional taxes in order to be penalty free, we have a problem. If the business owner doesn’t have $30K lying around, or can’t accumulate that by December 31, then it was great information to have but we couldn’t do much about it.

The six month mark is the time to do your first year-end planning. You look at the financial reports and see where you are now so you have time to react.

Here are the steps for the half-year update:

  1. Get your accounting up to date through 6/30/17 as if it were year-end.
  2. Review the books (internal audit). ( )
    1. Compare the TB to the last filed tax return. (Get the Trial Balance Adjustment Template)
    2. Review the balance sheet.
    3. Review the PL.
    4. Review SCF.
    5. Check for unrecorded items (e.g., cash).
  3. Run comparatives.
  4. Estimate taxes.
  5. Project the rest of the year.
    1. You can simply double the numbers.
    2. Or be more specific.
  6. How much cash should be set aside as of now?
  7. How much is there that's free and clear?
  8. The 10% test.
  9. The simple math: what do we need to have set aside, divided by the months we have left?

Our tendency is to think we can spend the money when it comes in, especially when it's a little (or a lot) more than usual.

What I've learned the past two years is that by setting aside my reserve and moving it out of my operating account, I see what is left, and now I'm not under the illusion that I have all this extra money.

Check out the article Cash Flow is not A Reward by Stephanie Travis for some more information on this.

The video above is from a webinar I recently held that went over this outline and walked through some practical examples of how to perform your half-year update.

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