2018 desktop calendar on wood surface

With the holidays now in the rear-view mirror, it's time to get back to work. Part of your job, at least in January, should be thinking about where you want to take your business over the next 12 months. That means reviewing business objectives, going over tax planning – and there are new things to consider for this year – and more.

“It's time to do a review," says Dean Deutz, vice-president of private wealth at RBC Wealth Management in Minneapolis. “You don't want to run out of time to implement some of these strategies."

Review your taxes

The new year is a good time to think about overall tax strategies. While you may have completed your year-end tax planning, you'll now want to make sure you're doing things right for this year, so you don't end up with an unnecessarily big tax bill down the road.

Start by understanding what kind of corporate structure you're operating within, says Deutz.

There are different filing rules for LLCs, Limited Partnerships, C Corporations, S Corporations and others, so it's imperative to understand, if you don't already, the kind of corporation you're running.

For instance, S Corps and LLCs are flow though entities where profits and losses are claimed on the owner's individual income tax return.

“It's all over the place, which is why one of the firsts steps is to look at what kind of entity you have," says Deutz.

The new tax act, passed by Congress in December, makes several changes to the seven individual income tax brackets.

According to Bill Ringham, vice president and director of private wealth strategies at RBC Wealth Management, these changes could impact business owners. The act lowers the effective rate on pass-through income for partnerships, S Corporations, LLCs and sole proprietorships by allowing a 20 percent deduction on certain specified income.

“High-net-worth individuals may expect to see a slight reduction in their income taxes under the new tax law," he says.

Connect with a skilled advisor
Don’t have an RBC advisor and wish to find one? Let us match you with one.

Once you have a handle on your corporate structure, you'll be able to determine what kind of deductions you may be able to take. For instance, companies expecting to make considerable profits this year may want to invest in new equipment before the end of December, says Deutz.

Why? Because some companies may qualify for a one-time deduction of $500,000 according to section 179 of the tax code. While that can be claimed any year, if you're having an especially profitable in 2018, you may want to consider using that deduction sooner rather than later, he says.

Update your business plan

Taxes are just one part of creating a 2018 plan. Another big one? Figuring out your business plan for 2018.

As every entrepreneur knows, companies are constantly evolving and every year brings new opportunities and challenges – the more you can plan ahead the better prepared you'll be, says David Cameron, senior vice-president and head of business banking at City National Bank.

“You want to do this every year," he says. “Business plans are a living document."

Companies should be reviewing their plans quarterly, to know if they're meeting their own expectations, but the first quarter is a good time to start planning ahead.

Business owners should set a roadmap and it should include every line item on a balance sheet or financial statement, says Cameron. Every product or offering that represents at least five percent of sales, every major market you sell into and every vendor and customer needs to be reviewed.

The idea is to identify new markets to expand into, come to better terms with vendors, find new customers or people to work with and more.

“You want to look at how to diversify, whether that's new products or finding new vendors," says Cameron. “The more diversified a company is, the more valuable they're going to be."

Take a close look at costs, too, adds Deutz. The new year can be a good time to see if there are places where you can cut expenses. For example, buying equipment may be more economical than renting, or investing in a piece of technology may help you save money down the road.

Of course, creating a 2018 plan is easier said than done.

“It sounds simple when you talk about it, but it becomes much more difficult when you get down to the dynamics of the business," says Deutz. “It's a bit of a cycle. You can put more of a focus on revenues one year and costs the next."

Consider valuations

The new year can also be a good time to review your company's valuation — and start thinking about how to raise it. This is especially important for business owners who may want to sell their company in the next year or two.

While determining the valuation of a company can be fairly easy — you can hire a firm to do it — increasing a business' worth is harder to do. Where do you start? Make sure your metrics show positive trends, says Cameron.

“The companies that sell for the highest multiples are emerging companies," he says. “These businesses have bright futures."

Boosting valuations means either making negative numbers positive, or positive numbers much better. That could mean adding new product lines, finding ways to acquire new customers or writing off old inventory so potential buyers don't see obsolete items on your books.

“You want the business to be running at an optimal level," says Cameron. “The more positive the trends, the higher the valuations."

Review retirement plans

While creating a 2018 plan, consider reviewing whether or not you have the right retirement plans for your staff. There are many different types of retirement plans — 401(k)s, profit sharing plans, Simple IRAs — and what worked before for employees may not work now. It's important to review plans earlier in the year, because some plans need to be funded by Dec. 31.

“Now's the time to see if you should make a change," says Deutz. “Some may need to be established and money may need to be in place. Do it now so you can get your retirement plan deductions."

When creating a 2018 plan, understand that not every issue can be addressed in the short term. You can plan to address other issues in the coming months. “At least you'll have something to work on," says Deutz. “The benefit of doing it sooner is that you know how much you'll need to spend on some of your strategies, but that doesn't have to be done (right away)."

City National Bank is a subsidiary of Royal Bank of Canada.