The words “Time to prepare your information for your taxes” are met with a collective groan throughout the United States. But tax time can actually be beneficial to your business. Really! Yes, the process can be tedious. However, it’s also a great opportunity. There are golden nuggets of information hidden inside the records you use to prepare your taxes. You just need to find them and figure out how to best use them.
Rather than thinking about tax time as an annoying chore, regard it as an opportunity to learn, reflect and reset for the upcoming year. There can be valuable information gleaned from the process beyond just how much money you owe the IRS. It’s worth your time to study your financial records rather than just giving them a cursory glance.
Telling Your Story
Let me start by stating upfront that I am not a tax expert. Issues involving how much you owe the IRS should be discussed with an accountant who specializes in that field.
However, I am an expert at helping clients discover what story their financial records tell about their business. To figure out your taxes, you must painstakingly gather financial information from many different sources. Once you’ve done that, you might as well get as much value from the information as possible.
2020, in particular, is a year in which your company’s story probably changed. Even if you’re planning—and hoping!—never to have another year like that, it’s still valuable to discover what your year-end records have to tell you. Think of it as a stress test. The process of figuring out what your company can withstand tells you a lot about your strengths and areas for focus. Your tax records can give you a good idea about which products or services are resilient during an economic downturn.
That information can help you make decisions about how to invest time and money to maximize profits in the future.
Like many companies, you may have made your business leaner and meaner during the pandemic. What impact did that have? Maybe your margins went up—suggesting your business may not have needed all those pre-pandemic expenses. Or maybe being lean hurt your company. Either way, it’s good to know.
Questions to Address
Is your business booming? Great! But there is still a lot of valuable information to be gleaned from your accounts. Perhaps you’re experiencing high turnover in your team members. Maybe it’s time to reexamine your staff deployment and compensation strategies.
Scrutinize your expenses. Often many small decisions accumulate, adding up to expenses that do not necessarily reflect your overall goals. Investigate how each expense is contributing to the bottom line. Is there one category that is taking up too much of your budget? Or maybe you’re paying for expenses you’re not using. Do you have a software subscription that you completely forgot about?
Your records can also tell you who are your best customers. Perhaps you want to focus more attention on those people. Or perhaps you’re spending more time and excessive resources on a customer who isn’t very profitable. Now is your chance to ask and answer those questions.
Understanding your Records
Another question to ask yourself is if you even understand your finances. Be honest. Do you truly know where your expenses and income stand? Understanding your finances isn’t something you can do halfway. If you are confused about those financial reports, you might want to leverage some guidance from an expert—or outsource your financial management altogether.
Need help with your financial records or taxes? Contact Distillery CFO to see if we can help.