What to Buy (and Not Buy) for Your Business Before Year End

As year end gets closer, we often hear business owners ask whether they should make purchases before December 31 to get the tax deduction. We have helped clients look at their numbers before making these decisions because spending money just to get a deduction does not automatically make it a smart business purchase. Before you start buying new equipment, software, or office furniture, here are a few things to consider.

Buy something your business actually needs

If you were already planning to replace an old laptop, purchase necessary equipment, or invest in software your business needs, making the purchase before year end may make sense. The key is that the purchase should have a real business purpose, not simply be something you are buying because you heard you need more deductions.

Do not spend $1 just to save a portion of it in taxes

A tax deduction generally reduces the amount of income subject to tax. It does not usually mean you get the entire purchase price back. For example, spending $5,000 on something your business does not need just to get a deduction can still leave you with $5,000 less cash. Before buying, ask yourself: Would I still make this purchase if there were no tax benefit?

Consider your cash flow

Before making a large purchase, look at the cash you will need for payroll, rent, taxes, debt payments, and other upcoming expenses. A purchase might make sense for your business long term, but that does not necessarily mean right now is the best time to pay for it.

Understand that not every purchase is deducted the same way

Some ordinary business expenses may generally be deductible in the year they are incurred, while certain larger purchases may need to be depreciated over time. For example, buying equipment is not necessarily treated the same way as paying your monthly software subscription. Talk with your tax professional before making a significant purchase based on an expected tax deduction.

The goal is not to spend as much as possible before December 31. It is to make smart purchases that your business actually needs while protecting your cash flow and keeping accurate records. Make sure legitimate business expenses are properly recorded, receipts are organized, and larger purchases are correctly reflected in your books.

If you are not sure where your business stands financially, start with your books. We can help get your bookkeeping accurate and organized so you have clearer numbers before making year end financial decisions. Ready to get your books organized before year end? Book a call to learn more about our services.

Cash Flow Tips for Business Owners During the Holiday Season

The holiday season can be an expensive time for business owners. Between payroll, bonuses, inventory, marketing, gifts, and year-end expenses, more money may be leaving your business than usual.

We help business owners keep their books organized and understand what is coming in and going out so they can plan ahead and avoid cash flow surprises. Here are a few ways to manage your cash flow during the holiday season:

1. Plan for holiday expenses. Make a list of additional expenses you expect, such as employee bonuses, seasonal help, inventory, marketing, gifts, and holiday events.

2. Plan for bonuses and time off. If you plan to give employee bonuses, account for those additional payroll costs ahead of time. Also consider employee and owner time off, holiday closures, and fewer working days that could affect your income or productivity.

3. Collect unpaid invoices. Review outstanding customer invoices and follow up on overdue payments. The faster you collect money owed to your business, the more cash you have available for upcoming expenses.

4. Review upcoming bills. Look ahead at payroll, vendor bills, credit card payments, loan payments, and other expenses. Knowing what is due can help you avoid a cash shortage.

5. Review your inventory. If you sell products, look at what you already have before ordering more for the holidays. Too much inventory can tie up cash that you may need elsewhere.

6. Set aside money for taxes. Remember, not everything in your bank account is available to spend. Make sure you are setting aside enough for upcoming tax payments and talk with your tax professional if you are unsure how much you may owe.

7. Plan your cash flow ahead. Estimate how much money you expect to receive and how much you expect to spend over the next few months. This can help you identify potential cash shortages early and make adjustments before they become a problem.

The holidays are busy enough without worrying about your business finances. A little planning now can help you protect your cash flow, stay organized, and start the new year in a stronger financial position.

Need help keeping your books organized and understanding your cash flow? We can help! Book a call to learn more about our services.