As we near the end of the third quarter, it is important for businesses to get ahead with their financial, accounting, and tax planning to end the year strong. Q3 is a key time for reviewing performance, planning for taxes, and preparing for the last quarter. This guide breaks down the important steps to take as we move toward the end of the year.
- Conduct a Comprehensive Financial Review
By the end of Q3, it’s important to carefully check your finances to guide business decisions. Go beyond just looking at how much you made or spent, and take a closer look at these key areas:
- Gross Profit Margins: How much money are you making from your main products or services? Are your costs higher than usual? Did something unexpected happen with your production or labor costs?
- Net Profit Margins: Look at your overall profits after all expenses, including taxes and interest. This shows how efficiently your business is running.
- Cash Flow: Cash flow is the heart of your business. Check for any trends with cash coming in and going out. Identify any potential problems and create solutions in order to avoid problems in Q4.
- Working Capital: Make sure you have enough assets to cover your short-term debts. If not, you might need to adjust when you send or pay invoices.
- Plan for Taxes Early
Don’t wait until the last minute to think about taxes. Q3 is a good time to start planning. Here are some strategies:
- Section 179 Deduction: If you have bought or are planning a significant capital expenditure acquisition, you may be able to deduct the full cost from your taxes this year.
- Deferred Income: If it makes sense, you can delay additional to the next year to possibly lower your taxes.
- Accelerate Deductions: Pay some expenses, like bonuses or rent, in Q3 or at the beginning of Q4 to increase your tax deductions for this year.
- Estimated Tax Payments: Make sure your estimated tax payments are on track. Paying too little can lead to penalties, but paying too much ties up your cash unnecessarily.
- Reconcile Your Accounts
Before Q3 ends, make sure your financial records are accurate by reconciling all accounts:
- Bank and Credit Card Accounts: Check that the balances in your accounting system match your actual bank statements. Every bank account, credit card, and loan account should be fully reconciled.
- Accounts Receivable: Make sure all customer payments are accounted for and follow up on any outstanding invoices.
- Accounts Payable: Confirm that all bills are recorded and paid, and check that all discounts allowed, such as early payment, were applied.
- Compare Budget vs. Actual Results
Now is the time to compare what you budgeted for with what actually happened in Q3. This will show you where you went over or under budget:
- Revenue Variance: Did you make more or less money than expected? What caused the difference?
- Expense Variances: Were some expenses higher than expected? Look closely at areas like marketing, technology, or labor costs, and see whether this was a one-time thing or the norm.
- Gross Margin Fluctuations: If your gross margins changed a lot, there might be an issue with how costs are managed.
- Update Financial Forecasts for Q4
Using your Q3 results, adjust your projections for Q4. Forecasting helps you prepare for potential challenges and opportunities:
- Sales Forecasts: Look at trends from Q3 to predict sales for the rest of the year.
- Spend Forecasts: Refine your spending plans for Q4, including upcoming expenses like bonuses or marketing campaigns.
- Cash Flow Projections: Make sure your cash flow forecast reflects your expected cash inflows and outflows for Q4.
- Plan for a Strong Q4
Finally, use everything you’ve learned in Q3 to build a solid plan for Q4:
- Strategic Spending: If you’re under budget, think about investing in areas that could help you grow. If you’re over budget, focus on controlling costs.
- Sales and Marketing Push: Q4 often brings big sales opportunities, especially during the holiday season. Make sure your marketing efforts are aligned.
- Team Alignment: Ensure that your team understands your Q4 goals and is ready to execute them. Clear communication and goals will keep everyone on the same page.
By following these steps at the end of Q3, businesses can stay financially healthy, reduce taxes, and set themselves up for a strong year-end.