When I was younger, I spent many summer days playing with friends. My mother had a rule; I had to check in at least once during the day. The time that I left the house determined the time when I needed to check in. As long as I checked in, everything was ok. As an adult, there are no such mechanisms in place: only recommendations. As a CPA, I recommend everyone check in on their finances at least once a year.
A general check-in should include the opportunity to look at the year in the interim. Where do you stand from a tax point of view? If the year were to end right now, what would your projected (commonly referred to as pro forma) tax return look like? As a business owner, are you setting aside enough money to pay taxes that will be due the following year? If you choose to make estimated tax payments, should those amounts be adjusted?
Are there any big purchases that you are considering for business or personal use, and how will that impact your overall financial picture? In addition to the current financial information, there could be additional tax mitigation scenarios that your CPA can turn you on to. Maybe you are a small business owner and could benefit from switching from a schedule C or a partnership to an S-corporation. Maybe as a small business owner you haven’t considered a Simplified Employee Pension Plan (SEP). Maybe you are paying Alternative Minimum Tax (AMT) and losing out on deductions from your Schedule A.
Along with considering new tax mitigation strategies, you should look for opportunities to change or drop existing recurring expenses. Items you should revisit include car and homeowners insurance, mortgage refinancing, cable providers, credit cards, and memberships.
Checking in should provide a sense of comfort and understanding of the overall information regarding your financial picture. It is an opportunity to ask questions, gather information, and make a plan for the interim and the future. This meeting should be attended by the decision makers of the business, the family, and any other important parties, such as a financial planner or advisor.
All this information can be a lot to take in at one time. But I’ve found that one of the most effective ways to accurately manage finances is to establish consistent accounting habits. Break out your responsibilities into a checklist of daily, weekly, monthly and annual activities. If you’d like to see an example of what that checklist might look like, check out this page!