It is October, winter has not even started, but here I start about year end tips for 2015. In my opinion you cannot always simply act on the tips you receive in December or sometimes even in January. Hence I bring the accounting tips now early. My tips are not focused on tax, but more on your loan capacity. You might wonder why as you currently have no need for a loan, but in the long run you might need one. Either to boost your business or to purchase something privately.
Meet your accountant
Basically that is the only tip I have. If all is well you recently filed your third quarter value added tax (VAT) return. That implies your accountant or bookkeeper is up to date with your administration.
Moreover, this period of the year, November, is much less hectic for the accountant than for instance January, so now is good to meet.
During that meeting you need your accountant to explain to you how the first nine months of the year have been. He or she will then address the topic of the turnover, costs, investments and cash flow. If anything needs your attention, your accountant will point that out for you.
Then you need to discuss where if possible you should put your focus in the last quarter of the year.. Is that the turnover? Or are you already at your max with the turnover. Or is that the costs? Or you cannot save any more you already do.
That is important for you to know so you can work in the last quarter of the year on this part of the result. In my opinion you should try to maximize your profit if you can. The most frequent response given is that you pay more tax with a higher profit. That is not an argument for me. You are in business, tax is part of the deal.
To maximize your profit you need to have a good result at the end of the year. That is always convenient when you need a loan from the bank, maybe not now, but in the future. The bank always demands to see at least three book years, so why not now already start with meeting that desire of good results.
Cash flow at the last day of the year is also a topic you need to address. Your balance is drawn as per December 31, the balance on that day is shown in your annual report. It is a short moment which stays a long time on the radar. So why not fulfill the request of any bank to come up with a good number? You can influence this number now already by either making more income or spending less. At least do not take out too much money before the end of the year. A low bank balance is a negative signal for the bank.
Maybe you wonder why I am so concerned about the bank. It is rather logical. Most people in the Netherlands like to own their home. If you purchase a home you need a mortgage from a financial institute. That financial institute finds it complex to arrange a mortgage for a self employed person. An employee simply shows his salary specification and his employer needs to confirm he is indeed still employed and that is it. A self employed person needs to bring a lot of documents as financial institutes find it difficult to determine the financial position. How easy can you make your life by showing good results on December 31st?
If you already purchased a home, you still need good results as at a certain point of time you need to renegotiate the interest rate or you decide to go to another bank. The whole administrative procedure starts all over again.
Your accountant will point out to you that turnover you can invoice in 2015 needs to be invoiced in 2015. In other words, you cannot wait till 2016. Especially when you work on an hourly fee, you need to invoice the hours spend in 2015, in 2015, even if you have not fulfilled the job. That implies you need to send invoices on December 31st. This is a good thing, as that creates debtors on your balance which is an asset. Banks like assets.
On the other hand you have invoices you need to pay. Best is to have all invoices paid before December 31st, as then you have no or a small number of creditors on your balance. A creditor is a debt, banks do not like debts. But paying your invoices before the end of the year implies you have a low balance in your bank.
That is why I start now already about the year end tips, so you have time to prepare for that one day in the year that follows you over a longer period: December 31st.
Orange Tax Services
We will be glad to meet you in November to discuss your books and do some window dressing to present nice results.