The Year-End Review: 3 Steps to a Better Bottom Line

Words by Tom Shay

It’s almost the end of the year, and that means you have an opportunity—scratch that, a duty—to evaluate your business, and take steps to improve your bottom line. The frenetic sales and constant cash flow of the spring and summer rush are wonderfully intoxicating, but they don’t mean a thing if you’re unable to turn a profit. Here are a few simple steps you can take in the final months of 2017 (and even into 2018) that can make a world of difference towards improving your bottom line a year from now.

STEP 1: MINIMIZE TAXES
With October financial statements in-hand, now is a good time for a brief meeting with your accountant about what you can do to minimize your 2017 taxes.
…by bringing future expenses forward:
While it’s often challenging for a retailer to defer income into the next year, you can instead look at what expenses you anticipate in the next year that can be brought forward into these final two months. Perhaps there are a few fixtures, a POS or other equipment you can purchase now instead of waiting until next year (purchasing or paying for inventory this year instead of next is not going to help with the taxes, as you are only exchanging one asset, cash, for another, inventory).
…by prepaying loan interest:
If your business has loans, ask your accountant about prepaying interest—not principle—for 2018. While interest counts as an expense, principle is not. Making early principle payments will diminish future interest on the loan, but it won’t lower this year’s taxes.

STEP 2: EVALUATE OPERATING EXPENSES HONESTLY, THEN REDUCE THEM
Everyone wants to cut operating costs, of course, but when confronted with a long profit and loss statement, it can be hard to suss out where there’s fat to be trimmed. Here’s a simple, two-step trick for objectively evaluating each of your operating expenses, and it doesn’t even require face-time with your accountant.
First, take one of your most recent profit and loss statements and, line-by-line, grade each operating expense on these two criteria: 1) controllable expense (write a “C” next to it), meaning that you decide whether your shop must have it, OR uncontrollable expense (write a “U” next to it) that you cannot operate without; and 2) fixed-dollar amount (write an "F" next to it) OR an amount that varies from month to month (write a “V” next to it).
Now every operating expense has two letters next to it. Those with “UF” written next to them
are uncontrollable expenses of a fixed-dollar amount, and nothing can be done to cut back on them. The rest are where you'll find wiggle room. Go over each with a fine-toothed comb, and see if there aren’t ways of diminishing them or, better yet, eliminating them altogether.

STEP 3: SKIP THE ANNUAL “TAX REVIEW”
There’s one more expense that begs another look, and that’s the traditional February meeting with your accountant to review what s(he) is reporting for your taxes. It’s too late, at this point, to change your tax bill, so the meeting offers very little value to your business. Instead, consider waiting until May, when your accountant has more time, anyway. Go over your financial statement through April 2018, and compare it to April 2017. See what’s changed, and make use of his/her expertise to make moves now that will improve your business through the end of 2018.


Tom Shay is a fourth-generation small business owner, and the owner of Profits Plus Solutions, a small business/independent retail consultancy.