Year-End Financial Planning: What to Review Before Making Your Next Business Decision
Updated: 3 days ago
With the end of the year approaching, now is the time to think through the financial decisions that could impact your business next year. That might mean hiring, planning bonuses, deciding on owner distributions, preparing for taxes, or thinking through where you want the business to go from here.
With so much to consider, knowing where to focus can be the hardest part.
What should you be looking at in your numbers?
Which decisions need to happen now?
And what can your business realistically support?
A good place to start is with what you already know. Your year-to-date numbers can give you a clearer picture of where the business stands, what you have room to do next, and what you need to prepare for before the year ends.
What should you be thinking about before year-end?
This is a good time to look at what’s working, what may need to change, and which decisions are worth making before you close out the year.
Before jumping into decision making mode, there are a few questions you need to ask yourself:
What can the business comfortably support between now and year-end?
Do we have the capacity to handle what’s coming, or do we need to make a change?
What do we need to plan for now so we have options later?
Before making those decisions, you need to know what the business can realistically afford and where you may need to adjust.
Which financial numbers should you review before year-end?
You don’t need to review every number in your financials. Focus on the ones that help you understand what the business can afford, where you may need to adjust, and what you need to plan for next.
Here are the numbers we'd start with:
Cash on hand and cash reserves. How much cash is available today, and how does that compare with the reserve target you’ve set for the business?
Revenue and profitability. How did Q3 and year-to-date revenue and profit compare with your expectations, budget, and prior periods? If you’re not clear on the difference between the two, start with our Revenue vs. Profit: What’s the Difference? blog post.
Upcoming cash commitments. What do you already know you’ll need to spend money on in Q4 (i.e. payroll, hiring, bonuses, debt payments, owner distributions)?
Accounts receivable. How much revenue have you earned but haven’t collected yet, and when do you realistically expect that cash to arrive?
Tax position. Based on year-to-date profit and estimated payments already made, what do you currently expect to owe? If you need a refresher, our Resource Library includes both an Estimated Taxes video and Estimated Tax Calculator.
Q4 cash flow forecast. Based on what you know today, what does cash look like through the end of the year? Map out when you expect cash to come in and go out, including money you’ve earned but haven’t collected and expenses you’ve committed to but haven’t paid yet. This will give you a better picture of what’s actually available before making additional Q4 spending decisions.
Once you have these numbers in front of you, the next step is deciding what, if anything, needs your attention before year-end. We’d focus on four areas.
1. Set your cash reserve target
“Do I have money in the bank?” is one of the most common questions we get from clients, but there’s actually a much better question you should be asking: how many months of expenses do you want sitting in reserve, and are you above or below that line right now?
We use a simple three-color system with clients: comfortably above target (green), getting close (yellow), and below target (red). Having a concrete number to work from, rather than just a feeling, allows for smarter and more strategic decision-making.
Cash feels tight” tells you there’s a problem. “We’re $80,000 below our reserve target” tells you what you’re working with.
How we handle it with clients
We establish a cash reserve target based on what makes sense for the business, then track against it each month. That gives us a clear benchmark for evaluating cash and making decisions throughout the year.
If you’re doing this on your own, start by deciding how much cash you want the business to keep in reserve. Then compare that target to what you have available today and use the gap to guide what you can realistically commit to.
2. Plan for hiring, bonuses, and owner distributions together
Here’s where a lot of businesses get into trouble without meaning to. Hiring, bonuses, and owner distributions can feel like separate decisions. A hire may feel urgent. A bonus may already be expected. A distribution may feel like money that’s available to take.
But they’re all drawing from the same pool of cash. If you make each decision separately, it’s easy to commit more than the business can comfortably support.
Take hiring. By this point in the year, you probably have a clearer sense of demand and what your current team can realistically handle. If the team is stretched and you expect that demand to continue, hiring may make sense. If there’s still capacity on the team, adding another person may not be the best use of cash right now. The goal is to understand what the business actually needs before taking on the additional expense.
The same applies to bonuses and owner distributions. They serve different purposes, but each one affects how much cash the business has available for everything else.
There isn’t one right order for prioritizing these decisions. What matters is looking at them together before committing to any one of them.
How we handle it with clients
We look at the need, timing, and financial impact of each decision against the same cash forecast. That means looking at a potential hire, bonus pool, and owner distribution side by side, along with everything else the business needs to fund.
If you’re doing this on your own, take the same approach. Put real numbers next to each decision, look at the total cash required, and compare that with what the business can comfortably support before making any commitments.
Related resource: If hiring is one of the decisions on your Q4 list, our Resource Library includes Payroll + Hiring video, which covers onboarding, bonuses, salary increases, reimbursements, and related considerations.
3. Get ahead of year-end tax planning
Tax planning is about more than estimating what you might owe. By Q4, you have enough information about how the year is shaping up to make decisions while there’s still time to act.
Start with your year-to-date profit, what you expect to earn through the rest of the year, and the estimated tax payments you’ve already made. From there, you can estimate your tax liability and determine whether there are any decisions worth making before year-end.
Depending on your business, that could mean looking at the timing of expenses, retirement contributions, or owner compensation. But a potential tax benefit shouldn’t be the only factor driving the decision.
For example, spending money before year-end may reduce taxable income, but that doesn’t automatically make it a good business decision. That cash may be more valuable for maintaining your reserves, hiring, or funding another priority.
Tax planning should help you make better business decisions, not just lower a tax bill.
How we handle it with clients
Tax planning is part of the larger financial conversation. We look at what the business is expected to earn, what that could mean for taxes, what’s already been paid, and which decisions are still available before year-end.
Then we weigh those options against the other things the business needs to fund. That gives clients time to prepare for what they may owe while making tax decisions in the context of what’s best for the business overall.
4. Use what you’ve learned to start planning for next year
At this point in the year, you have enough information to see how the business is actually performing and use that as a starting point for planning ahead.
Look at where revenue and expenses landed compared with what you expected. Then think about what you already know may change next year, whether that’s adding to the team, increasing compensation, making a new investment, pursuing growth, or preparing for a slower period. Use those assumptions to start building your budget and cash flow forecast for the year ahead.
You won’t know exactly what next year will bring, and that’s not the point of planning. The goal is to understand what needs to happen for your plans to work financially and where you may need to adjust if things don't go as expected
How we handle it with clients
With our Fractional CFO clients, budgeting and forecasting aren’t once-a-year exercises. We establish both before the year starts and revisit them throughout the year, comparing what’s actually happening with what we planned for and adjusting as the business changes.
That way, when a new opportunity or decision comes up, we can look at how it fits into the larger plan rather than simply asking whether there’s enough money in the bank today.
Related resource: Our Budgets + Forecasts resources walk you through how to use both to plan ahead and compare your expectations with what actually happens.
Q4 and year-end financial planning FAQs
When should business owners start year-end financial planning?
Q3 is a good time to start because you have enough of the year behind you to see how the business is performing, while still having time to make changes before year-end. Waiting too long can leave you with fewer options, especially when it comes to hiring, spending, taxes, and cash.
What financial information should I review for year-end financial planning?
Start with the numbers that help you understand what the business can realistically support: cash and reserves, year-to-date revenue and profitability, accounts receivable, upcoming commitments, your current tax position, and your cash flow forecast. Together, they give you the context to make decisions about the rest of the year and start planning for the next one.
What's the difference between year-end financial planning and tax planning?
Tax planning is one part of year-end financial planning. Tax planning focuses on your expected tax liability and the decisions that could affect it. Year-end financial planning looks at the bigger picture, including cash, hiring, spending, owner distributions, taxes, and what you’re planning for the year ahead.
Should I start budgeting for next year before the current year is over?
Yes. By Q4, you have enough information to start making realistic assumptions about next year based on how the business is actually performing. Your budget and forecast can then be updated as you learn more. The goal isn’t to predict exactly what will happen, but to have a plan you can use to make decisions and adjust along the way.
Make your next financial decision with the full picture in mind.
As your business grows, financial decisions become more connected. Hiring affects cash. Spending can affect taxes. Owner distributions can affect what’s available for other priorities. Looking at any one decision on its own can make it harder to see the impact on everything else.
That’s where having the right financial partner can make a difference. We help you bring the numbers together, understand what the business can realistically support, and make decisions with the full picture in mind.
Whether you’re hiring, planning for taxes, managing cash, or thinking about what’s next, we help you understand how each decision affects the rest of the business.
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