It’s officially time to get serious about your accounting and taxes.
Because if you’re an S corp or partnership and you haven’t yet filed your 2024 taxes, it’s imperative that you file an extension … immediately. That’s because March 17th is the deadline for filing Forms 1120-S, 1065, 1042, and others.
Why else should you be taking your accounting seriously right now? Just take a look around: The consumer price index went up 2.8 percent in February (down from 3 percent in January). So, yes, inflation has mellowed slightly, but there are definitely still cost pressures (especially for your morning omelets).
While slower price hikes are good news for your Jersey Shore business’s budget, they haven’t come to a complete stop. Which means you still need to be thinking strategically: Where are the prices of critical goods for your business currently resting, and how are you going to handle them?
And you aren’t the only one who lets inflation impact your spending – banks usually react by tightening their lending standards or requiring higher interest rates. Which is not ideal for you, if your current business goals involve expansion that you’ll need to take out a loan for.
Plus, if you bump up your prices significantly because of tariffs or inflation, lenders will see your business as higher risk.
So, what can you do?
Hone your business’s accounting. Make sure you’re consistently doing the basics. Truly, intentional accounting is your best move if you want the freedom to take every opportunity that comes your business’s way.
Here’s what I mean by that…
“The loftier the building, the deeper must the foundation be laid.” – Thomas à Kempis
Here’s the hard truth: You’ll NEVER be able to level up your business with financing or scale it down if you don’t have accounting basics in place.
Why? Because numbers can’t lie.
Your cash flow statement, debt-to-income ratio, P&L statements, and all your other accounting records are a direct gauge of the financial health of your business. They’re the proof that someone – whether a buyer or lender – should take a chance on you.
Does your business’s accounting currently give them reason to?
If you walked into a local Monmouth Beach lender’s office today and asked for a loan, they’d ask for proof that your company is financially stable. They want to see…
Potential buyers for your business are looking for pretty similar stuff – and if they don’t like what they see, they’ll walk away. Or, they’ll offer you WAY less than your asking price. So, you need to be able to show them…
If you’ve got a meeting with lenders or buyers coming up (or would like to put one on the calendar this year), here’s what you need to do to get your accounting into shape:
Step 1: Gather all your financial documents.
(Bank statements, credit card statements, invoices, receipts, payroll records, tax documents, loan agreements, leases, contracts, P&L statements, balance sheets, and cash flow statements.)
Step 2: Pick your method. Cash-basis accounting recognizes income and expenses when money actually moves in or out, while accrual-basis accounting records transactions when they are earned/incurred. (Quick tip: Lenders and buyers prefer businesses that are accrual-based.)
Step 3: Start recording every transaction.
Step 4: Set up a clear filing system.
Step 5: Clean up your financial statements. Make sure all your revenue and expenses are recorded and categorized correctly on your P&L statement, that your balance sheet lists all your loans, credit lines, and outstanding debt, and that your cash flow statement tracks in detail how cash is moving in and out of your business.
Step 6: Calculate your debt-to-income ratio. Divide your total monthly debt payments by your monthly gross income (you’re aiming for a ratio below 36 percent).
Step 7: Reconcile your accounts regularly to make sure your accounting records match your bank and credit card statements. I recommend doing this monthly (or weekly, if you’re in your industry’s busy season) to catch errors and fraud before they snowball.
In all honesty, my best piece of advice here is to invest in a professional accountant. And no, I’m not just saying that because I want to make a dime. The legal liabilities of not having good accounting in your business are huge, not to mention the strategic missteps you’ll likely make.
Why? Because you’re not an accountant – and that’s okay. You didn’t start your business to become one. So let someone with expertise you can trust handle this for you:
calendly.com/shorefinancialplanning/the-first-step
Here to lighten your load,
Joseph Vecchio