The importance of an annual review

The cash flow statement considers the changes in cash from operations, investments and financing. It provides an opportunity to ask questions about how the company managed the year from a basic, cash in/cash out position. However, it is important not to focus solely on whether there is a net positive or a net negative cash flow at the end of the year. Like most of tax, look at all the facts and circumstances. 

Cost base looks at the assets of the company and how much money has been spent to acquire them. It is a good practice to review the asset list every year and to make sure any assets no longer owned by the company are no longer on the books and are removed from the tax return. This is also a good time to look at any unexpected expenditures for the year

Finally, look at the growth of the company. Is it what you are expecting? What needs to happen for your expectations to made into reality? It is so much easier to reach the next level if you are aware of where your company stands because you deliberately examined it, rather than if you are surprised when you file your taxes.

Year in and year out, we find our clients that are most satisfied, and have a steady business are the same clients that do Tax Planning before EOFY, and an Annual Review after EOFY.

We sit down and look at where the business is and then we talk about what that means for them personally. Do they need to make a larger quarterly estimated tax payment? Is there room for a larger profit-sharing distribution? Have they told me about all the equipment the company purchased or is planning on purchasing? Or are they in a position with which they are comfortable and no adjustments are necessary?

Working capital runs along similar lines. It looks at how efficiently the company is operating and how financially stable it is in the short term. It is a good time to look at your cash balances, your accounts receivable and your inventory and make sure those items are trimmed and well maintained. Look at your payroll as well if you have any. Often little mistakes can be missed. This is a great time to catch those early and get them fixed.

How much debt does the company carry? Look at short term in addition to long term debt with a critical eye. Are things paid off in an efficient manner? Can some items be rolled into others? Mortgages and credit cards all count towards this item. Also, any loans that the owner, shareholder or partner makes to the company need to be in writing with appropriate terms for interest and repayment.