The year’s end isn’t just a time for festive celebrations and time with loved ones — for small businesses, it’s prime time to dig in on a financial plan. Houston ranks among the top 20 cities where small-business owners are thriving, and 97% of our city’s businesses have fewer than 100 employees. At Central Bank, we are dedicated to ensuring our friends and neighbors have what they need to remain poised for success. Read on for a handy financial checklist to help you evaluate your current standing, make adjustments where needed and enter into the new year a bit better prepared.

Step 1: Run the Right Reports
As the year draws to a close, it’s important to have an all-encompassing understanding of your finances. In most cases, you will want to look at three different reports: your balance sheet, income statement (or profit and loss report) and cash-flow statement.

Regardless of whether you run the reports or have them generated by an accountant, these three reports will help you gain real insight into your small business:

• A balance sheet provides insight into what your business owns (its assets), what your business owes (its liabilities) and how much your business is worth.
• Your income statement is the best way to see where your business stands financially and what your outlook is like for the new year.
  • If your profits are lower than expected, you might need to make some changes as you plan for 2021.
  • If your profits are higher than expected, it might be a good time to make some larger purchases for which you can record future depreciation.
• A cash flow statement records how your money was spent throughout the year. Cash inflows equate to income, and examining your cash flow statement now can help you identify cash flow trends throughout the year.

Next, separate your cash flows into three types:

• Cash flow from operating activities (revenue and expenses)
• Cash flow from investing activities (assets purchased and sold)
• Cash flow from financial activities (loans and repayments)

Finally, determine your cash flow. The cash flow statement formula adds a beginning cash balance with net changes in each activity to determine the ending cash balance:

Beginning Balance in Cash + Net Changes in Operating, Investing and Financing Activities = Ending Cash Balance

For new business owners, these reports will help you see how your year went (versus your initial projections), while long-time small business owners can use them to compare the current year’s numbers to those prior.

Step 2: Back Everything Up
Passion and hard work aside, data and information are the keys to the success of your small business. Above all else, hard numbers and insight should drive your day-to-day strategy, define your execution and influence your future plans.

As a business owner, you probably rely on your computers for accounting, point-of-sale systems, employee records and other business-critical information. Your data is invaluable, so you should take the time to back up your computer system often. A couple of things to remember:

• These days, cloud-based and physical backup drive options can simplify the process, or even automate it for you. Just be sure to name your files in a way that is easy to understand (and locate later on)!
• Don’t forget your cell phones and tablets. There’s a decent chance you have contact info and other important details stored there (and nowhere else). Regular backups help ensure you always have access to the information you need to move your business forward.

Proper data analysis and implementation are essential for setting up your Houston small business for more success with each new year. As a best practice, make and store copies of everything. Download any essential digital files stored in the cloud, and scan or take pictures of important paper documents — even sticky notes — to upload to your backup drive.

Audit Your Inventory
Depending on the type of small business you own, you may need to confirm that anything you’ve purchased to sell is accounted for — either in sales or in stock. Conduct an inventory count of any on-site storage or warehouses before the year’s end — as close to December 31 as possible. As an end-of-year exercise, this will help assure that you are keeping accurate records and don’t have issues with internal loss. It also helps you plan for the year to come, as you’ll be able to determine what’s selling (or not selling) and adjust accordingly.

Build a Better Budget
Most people think of a budget as a tool that indicates how much you’re spending in comparison to how much you’re making. In truth, it’s so much more. Your budget is something of a map aimed at helping to guide you through the year, and this financial plan is designed to be updated over time. With the end of the year approaching, now is your chance to adjust your small business’ budget to factor in growth, goals and anything else that might impact your spending.

Now is also an ideal time to take a close look at where you can make some money moves and trim expenses. Did you sign up for products or services that you’re not using? Cancel them. How about promotional or marketing approaches that didn’t pay off? Try something different. While you’re at it, make sure you’re getting the best deals on utilities and other subscription-based services, like internet, phone and mail services. You can call yourself or work with a company like BillShark, which will negotiate rates for you in exchange for a percentage of the savings.

Once you’ve finalized those figures, you can build your small business budget in five easy steps:

• Tally your income sources: Make sure to account for any and all income flowing into your business.
• Determine your fixed costs: These are expenses that stay the same from month to month — rent, certain utilities (internet or phone plans), website hosting and payroll costs, for instance.
• Include any variable expenses: Include bills for usage-based utilities (electricity or gas), shipping costs, sales commissions or travel costs, as well as any expenses based on usage or activity.
• Predict one-time expenditures: Expanding your staff? Adding new equipment? Both will add to your costs. You should also incorporate a buffer — a safety net of sorts — to cover unexpected or unplanned purchases, expenses, bonuses or raises.
• Put everything together: Tally your total income and expenses (your total fixed costs, variable expenses and one-time spends/savings). A zero-based budget means every dollar is accounted for — that your income and expenses are equal. Anything less can spell financial trouble for a business, so if you’re not accounting for that, look to see where you can trim expenses further to ensure a successful year.

Get Ready for Tax Time
Tax season doesn’t have to be scary. A little preparation now will save you stress (and time spent gathering documents) later. Here are a few things you can do now to avoid headaches later:

• When reviewing your expenses for the year, have necessary documentation for items that can be deducted.
• File Form 940 to report your annual Federal Unemployment Tax Act (FUTA) tax, and Form 941 to either report income taxes, Social Security tax or Medicare tax withheld from employees’ paychecks or pay your portion of Social Security or Medicare tax.
• Once payroll totals are confirmed and each employee’s information (gathered from the W-4 they filled out when they were hired) is assembled, it’s time to issue W-2s. Send two copies to the employee and a copy to the Social Security Administration by January 31.
• Ensure you have W-9s on file for independent contractors. You should send copies of 1099s to each vendor/independent contractor and the IRS by January 31.

The end of the year is a great time to check in with your tax advisor or accountant to make sure your small business is structured in a way that allows you to get the maximum tax advantage. For example, if revenue is high and you have adequate cash flow, you might consider end-of-year purchases that can be written off, such as buying new equipment or replenishing supplies.

We’re Here to Help
Central Bank has partnered with local Houston businesses since 1956. We understand that your savings are essential to your business’ day-to-day operations, and we make it our priority to build relationships on a foundation of trust and reliable banking products designed for businesses of all sizes.

We offer personalized service and a variety of financial solutions to help your business grow. Start a conversation with an expert member of our business banking team today to learn how we can help. Get started today — contact Central Bank today by calling 832.485.2300, visiting one of our locations or sending us a message.