Now is the time to manage down your costs of doing business, utilize your balance sheet as a cost-reduction tool, clean up bad debts, and take advantage of available tax incentives, credits and deductions to reduce your tax burden. It's not too late in the year for business owners to profit from clues found within their own financial statements. Through a balance sheet analysis, identify areas where you could be saving money on a recurring and long-term basis that will strengthen your company from within for the long run. Don't forget to consider tax-saving opportunities afforded by the law.

Manage down your costs of doing business
Success in cost reduction is largely about managing costs proactively and keeping a strategic view of cost drivers.  It has been proven that business owners who take an active, leading role to manage costs are twice as successful as those who undertake cost reduction systems in reaction to market pressures.  But when the economy fluctuates, there are also several ways in which you can quickly and (usually) easily make changes that result in significant savings.  Cost savings can come from:

• Better purchasing - negotiating lower prices or working with vendors who are more reliable in quality and service
• Increased productivity - doing what you do more efficiently and reducing activity and wait time in the process
• Innovation - changing what you do or how you do it for something better
• Better quality - reducing waste from mistakes, production and duplication of efforts

For detailed information on how to reduce your costs of doing business, please click here.

Utilize your Balance Sheet as a cost-reduction tool
The one surefire path to financial success is increasing long-term savings and consistently reducing debt and expenses. Seek to maintain a positive cash flow while minimizing costs. Evaluate your monthly cash flow with the goal of increasing your monthly bottom line. Through a balance sheet analysis, identify areas where you could be saving money on a recurring and long-term basis that will strengthen your company from within for the long run. Your balance sheet is an under-utilized budgeting and cost-reduction tool. Each line item presents at least one opportunity for expense minimization, from "Cash" (banking relationships, account fees, etc) to "Inventory" (purchasing procedures, vendor options, etc) to "Accounts Payable" (segregation of duties, internal controls, interest penalties, etc). Perform an analysis of your financial statements and maximize each opportunity identified.

Clean up bad debts
During the current recession, it may be difficult to secure payments from clients or customers. Now that the end of the year is in sight, take a close look at your delinquent accounts. The last thing you want to do is pay tax on revenue your company earned but can't collect. If you meet the requirements, you may be able to write off bad debts on your 2009 tax return. As a general rule, business bad debts are deductible only when they become worthless. Keep detailed records of collection efforts to support deductions based on the worthlessness of debts. Want to know more about bad debts? Please click here.

Take advantage of incentives, credits and deductions
The American Recovery & Reinvestment Act (ARRA) extended and enhanced several credits, deductions and incentives for businesses. Remember to take advantage of appropriate opportunities prior to year-end for maximum results, including:

• Section 179 deductions: Under Section 179 of the tax code, a business taxpayer may currently deduct the cost of qualified business assets placed in service during the year. The maximum annual deduction is $250,000 for assets placed in service in 2009.
• Depreciation deductions: In addition to bigger Section 179 deductions, the 50% "bonus depreciation" deduction for qualified assets placed in service in 2009 has been extended through 2009 (2010 for certain equipment). Regular depreciation deductions are also still available.
• Business travel: Travel expenses incurred by employees - including airfare, lodging and 50% of the cost of meals - may be deductible if the trips are business-related. When it is appropriate, move up business trips planned for early next year into November or December. This allows your company to write off the travel expenses in 2009 instead of waiting until 2010.
• Repairs: Repairs made by a business before year-end are deductible on its 2009 return. However, capital improvements to the business premises must be capitalized. To preserve current deductions, try to implement separate plans for repairs and major renovations.
• Net operating losses (NOLs): Normally, a business may carry back NOLs for a period of only two years before carrying the losses forward for up to 20 years. But ARRA allows a business with an NOL in 2009 to carry back the loss for up to five years. This may require astute timing of income and deductions at the end of the year.
• Research credits. Recent tax laws have extended and enhanced the research credit. Under simplified rules, a qualified company may claim a credit equal to 12% of qualified research expenses exceeding 50% of the average qualified research expenses for the previous three years. Currently, the research credit is scheduled to expire after 2009 (although it is likely to be extended again).
• Energy Tax Credit. The Energy Policy Act of 2005 (EPACT) created new tax incentives for installing energy-saving improvements in a plant or other commercial building. Under EPACT, commercial building owners or leaseholders can claim a deduction for all or part of the cost of energy-efficient improvements placed into service before 2013. The deduction is generally equal to $1.80 per building square foot, less any aggregate deductions claimed in prior years. There is no overall dollar cap on the annual deduction. For example, if no prior deductions have been claimed, the deduction for a 100,000 square foot building is $180,000. The law establishes some stringent criteria to qualify for the deduction, so contact your trusted advisor for assistance.

These year-end tax and expense reduction tips will apply differently to each company. There are a number of strategies businesses can employ to reduce taxes, but not all of them are appropriate or available to every business. In certain circumstances, reducing your tax burden for this year may have a negative effect on future years. If your long-term goals might be in jeopardy by altering your current tax position, do not be tempted to make changes.

If you have any questions about which tax and cost reduction strategies might be appropriate for your business, or how to implement them successfully, please contact us. We will help you review the best strategies to help you make the most of year-end planning for your business. In addition to performing an analysis of your balance sheet and income statements in order to help you identify cost reduction opportunities, we can also assist you with business strategies that will help you be in the optimal position for growth and prosperity going forward. Call us today. We can help.

Jeffrey A. Bolton, CPA is a co-founder, Partner, and member of the firm's Executive Committee.  He works closely with our Entrepreneurial Services and Strategic Business Solutions groups.  As an experienced CPA, Jeff provides expertise in entrepreneurship, tax and accounting. His practice primarily services family-owned, emerging and high-growth companies.  Jeff's focus is helping business owners achieve success through the implementation of profit enhancement, expense reduction, asset protection and business process solutions.