How to keep your tax finances healthy in 2014
Now we are entering into a new year, with all this talk of diets and gyms, why do we not give the same importance to our finances? This applies to both business and personal finances and there are simple ways in which both can be improved.First of all plan the year ahead in quarters. If you break the year down into four installments of three months, it becomes easier to manage and dedicate time and energy to the task in hand.
Q1 – Close down last year.
Dedicate time in quarter one on working with your accountant on finalising the accounts and tax for the last year financial year. This way all loose ends can be tied up in the first three months of the year, ready to re-focus on what is really important (moving your business forward, making more profit and maximising future tax savings) for the other 9 months.
By doing this, you will have an early calculation of your taxes to not only enable further saving for the tax payment if you don’t have the funds available, plus if the tax bill was higher than expected, suitable actions can be taken to ensure that the following year is more tax wise. Maybe a trick was missed last year due to bad timing of a lack of planning?
Q2 – Review the situation.
This is a great time, with last year’s actual financial figures to hand to assess the last year; what worked, what didn’t work, what could be improved and what you can avoid this year. These tasks to do are:
- Know what is coming in and out of your business and personal bank account each month. Analyse both your business documents (accounts, tax return) from last year and income and expenses from Q1 and start to get a real understanding of your current situation from a financial perspective.
- Identify your short, medium and long-term goals. This needs to be first on a personal level then matched to business objectives to ensure that both are realistic and aligned. This could be anything from holidays; where a simple savings plan may be required, to buying a rental property or retirement, both of which need some serious financial and tax consideration.
- Create financial budgets. Work out a projection of expenses and income to match your goals. Allocate money for marketing and promotion and any expansion. Then speak to your accountant to find out if there are any tax wise ways to implement your plans; recruitment, purchase of equipment, relocation of business premises…perhaps.
- Make a plan to reduce debts. First of all understand exactly how much debt you have and (more importantly) the money you need to clear the debts, including interest and fees. Speak to your accountant to find out which of these are getting the most tax relief and if there is perhaps a better way to re-finance debt in the short term to benefit from both tax advantages and from better rates of interest.
Q3 – Take action.
Using the information gathered in Q2, start to action your to-do list. Don’t try and tackle it all at once but systematically take action and start to see results. Tasks to do:
- Keep up to date. Ensure your books and records are kept up to date every month and you are continually reviewing actual performance against the budgets and targets set in Q2. Keeping a close eye on performance will mean you always have a good understanding of the all important profit figure; if you see it falling then there is cause for concern with business performance. If you see it rising then options need to be explored for how to keep the tax bill to a minimum.
- Shop around, switch and save:
Q4 – Prepare for close down.
Continue with tasks from Q3 and to continually review and revise tasks from Q2 but now also start to consider preparing closing down the current financial year. Tasks to do:
- Tie up loose ends.
- Do any year-end tax planning with your accountant to make sure that opportunities are not missed.
- Speak to your accountant and find out if you can book your records in early this year because everything is up to date.
- Now you have been organised for the last year, tasks in Q2 can actually be moved to Q4, so goals and targets and budgets are actually set way in advance.
In summary, if your finances are important to you then you will want to keep them healthy. This involves some time and dedication to looking after them and understanding them. Even if you bring in a few of the tips above you will be able to save time, save tax and feel more in control of both your business and personal financial position.