A few years ago, one of our clients received a customer payment for over seven-figures on December 30th. The payment itself was not a surprise, but the timing was. They were expecting the payment to come in January.
This could have resulted in a large unanticipated tax bill for our client.
We had met with them a few times in November and December to work on projections for their year-end net income. Even though what we expected changed, we updated their projections and quickly helped them develop a plan of action before the end of the year. This gave them control over where their net income landed.
Two Kinds of January
January splits business owners into two camps. One is waiting on their tax accountant to tell them how last year actually went and how much tax they will owe. The second already knows their taxable income.
The difference isn’t the size of the business. It’s when they started looking.
What Changes When You Start Before December
Surprises still happen. Our client’s payment came earlier than anyone expected. The projection did not include it. But it included almost everything else.
The early payment meant that we had to update the plan. However, we didn’t have to build everything from scratch at the last minute. Instead, we could adjust it. It was most of the way there.
This Isn’t About Predicting the Future
Nobody knew the payment was coming early. When it did, there was already a plan in place to react to it.
Projecting year-end net income isn’t about guessing what will happen. It’s about knowing where things stand well enough so that when something changes, you can adjust instead of scramble.
Last year, same client, different payment. The client had a customer payment they didn’t know if it would come in December or January. This time we built them two scenarios ahead of time. One if the payment came in. One if it didn’t.
The first time, we had to move fast on December 30th. This time there was nothing to move fast on. Both outcomes were already covered.
Where This Leaves You
If you’re waiting until your books close in January to find out what kind of year you had, you’ve lost the chance to do anything about it. Owners who start looking before the year is over give themselves time to make a change.
Year-end still feels far away. That’s exactly why this is the month to start.
Ready for a year-end net income projection of your own? Let’s take a look at where things stand while there’s still time to do something about it. Reach out here.