As the calendar year comes to a close and you are preparing for the festive season, now is a good time to take a few minutes and look at your business performance as well as some tax issues.
You can have an impact on your 2017 taxable income by deferring the recognition of income until 2018 when presumably the tax rates for most types of business organizations will be lower. On the flip side, you can recognize expenses in 2017 – perhaps through pre-payments, to lower your taxable income. As soon as the new tax bill becomes law and is it analyzed by accountants and tax professionals, you might consider a consultation to decide how to best take advantage of the new tax landscape.
As you close your books for December and prepare your 2017 management accounts, take a look at:
Many members of I/O Spaces are Tech Startups, and thus do not have a lot of physical assets. However, you do have intellectual property and other proprietary intangible assets. The sales/assets ratio will indicate how well you ‘sweat’ your assets. This ratio is more meaningful if you can compare it to similar businesses.
At the basic level, working capital is determined by the relationship between current assets and current liabilities (CA/CL). Conventional wisdom says that this ratio should not be less than 2:1, but what really matters is how efficiently you manage receivables and payables. Always prepare an aging analysis of your receivables and try to collect all outstanding invoices in 30 days or less. If your average days receivable is 45 or over, that is a warning sign – especially if you are trying to pay your invoices on time.
Review and understand your budget variances, positive or negative.
Finally, focus on the “EBITDA” (earnings before interest, taxation, depreciation and amortization) figure. This figure will determine whether you have sufficient cash to service your debt and payments to capital.
Should you need advice, I’m available to talk.