We’re rapidly approaching the end of the calendar year and for most businesses January begins their new fiscal year as well.
Depending on your unique situation, you may be able do a few things to adjust your margins, cash flow, and taxes within the next few weeks before the end of the year. Many of the options you have may be dependent upon your cash position.
It would be prudent to review your options with your accountant and tax advisor. Of course some of your actions may hinge on your personal speculation regarding the next Presidential administration and their tax policies.
A few considerations, many which can work in combination, are as follows;
Use of Cash
If you are in a good cash position, it may be prudent to call you suppliers and offer accelerated payments in exchange for a pre or prompt payment discount. Many small businesses operate on a cash basis and recognize their revenue upon cash receipt. Some suppliers may be desperate for cash to fund operations, make their “ratios” look good, make their operational bonus thresholds, or just offset other customers delayed payments. By shifting your payments by a week or two you may be able to negotiate a one-time 2-5% discount. Making 2% in two weeks is greater than a 50% return when annualized. I’d wager that some of the companies would even provide their FedX account number to get the check quickly.
With the economy in a funk, you may be able to negotiate better pricing with your vendors by accelerating early 2009 purchases. Purchases, like Business Subscription Services which may cost thousands of dollars, could be accelerated, if an appropriate discount is reflected, committing you over a number of years, while incurring the expense now.
Even smaller purchases, like office supplies, furniture, etc., have retailers and supplier that would rather have a guarantee discounted sale now than hold the product, inventory it and hope for a sale later. For example: buying paper and consumables now for use now through February or March is easily justified. You can accelerate your expenses, get a lower price, and possibly get an additional cash discount as mentioned above.
Slow moving or overstocked inventory items could be adjusted in value and sold at a reduced price under cover of an “End of Year” sale.
Internal Balance Sheet Reserves and Write-Offs
Now may be the perfect time to review your bad debt reserves, inventory obsolesce reserves, warranty reserves and other liabilities. Are they over or underfunded?
Now is the time to make any accrual adjustments. Is your vacation accrual up to date? Do you have work in process that needs to be accrued? Do you have license, insurance or other obligations that should or could be accrued?
Project “Estimates to Complete”
If you bill clients on milestone completion or used job costing have you updated your estimates to complete to insure the project budgets are accurate and funds remain to complete the projects? If not, an adjustment should be made to the projects.
Have you completed projects which have been delivered, paid for, and past their warranty period that you could close in your accounting system and recognize the remaining profits?
If you are traveling early next year, have you bought your tickets, pre-paid your hotel and paid for incidentals like trade show expenses? If you operate on a cash basis these could be current expenses. Committing early would also potentially result in lower prices.
Are you expecting to have to restructure? Even small and mid-sized companies can take some adjustments in advance for extraordinary events.
You still have time and significant opportunity to affect your 2008 results.