As the year ends, small business owners face some critical task of ensuring their finances are in order. Over 60% of small business owners spend over 10 hours per week on accounting tasks, and 30% report issues with keeping their finances organized and tax-compliant. This underscores how vital year-end accounting is to business success. Failing to close out your financials properly can lead to costly mistakes and missed opportunities. Here you can see a complete year-end accounting checklist that will ensure you finish the year strong and position your business for success.
1. Reconcile All Accounts
Reconciling your accounts ensures your books are accurate and consistent with your bank and credit card statements. Inconsistencies between your internal records and external statements can lead to errors that affect your year-end financial reports.
Steps to Take:
- You have to match your bank statement against your accounting records to ensure all transactions are accounted for and that there are no inconsistencies.
- Check that all business-related purchases and payments are recorded accurately.
2. Review Accounts Receivable and Payable
Managing your accounts receivable and accounts payable properly ensures that your cash flow is in good as you move into the New Year. Unpaid invoices and outstanding bills can cause financial strain.
Steps to Take:
- You have to review all outstanding invoices. For those customers who have overdue payments and you have to send reminders. Consider offering early-payment discounts or flexible terms to encourage quicker payments.
3. Prepare for Tax Filing
Year-end accounting is your last opportunity to reduce taxable income for the year and ensure you are ready to file taxes on time. Over43% of small business owner’s state that they struggle with taxes and miss deductions which leads to overpayment.
Steps to Take:
- Review your business expenses including office supplies, employee benefits and business-related travel to ensure you are claiming all possible deductions.
- If you haven’t already, you have to schedule a meeting with your accountant or tax preparer. They can help you identify additional tax-saving strategies like deferring income or accelerating expenses.
4. Conduct a Physical Inventory Count
For businesses that deal with physical products, an accurate year-end inventory count is essential to your financial statements. An incorrect inventory count can lead to overstated or understated profits, affecting your year-end balance sheet.
Steps to Take:
- Physically count your stock to match it against your financial records. Don’t forget to account for damaged items.
- If any inconsistencies are found, you need to update your accounting software.
5. Plan for the Upcoming Year
The end of the year is the perfect time to set financial goals and strategies for the coming year. Whether it is growing your business, managing cash flow better, or expanding into new markets, a financial plan will guide your efforts and keep you on track.
Steps to Take:
- Review your performance over the past year and set measurable goals for the next one.
- Plan for the upcoming year by creating a budget that includes estimated revenue, expenses and investments.
6. Review Your Business Structure
Business structure has tax and liability implications. If your business has grown in the past year, it might be time to reconsider your structure for tax savings or enhanced liability protection.
Steps to Take:
- You need to speak with a tax professional or lawyer to determine if your current business structure is the best option. For example, developing from proprietorship to an LLC could provide enhanced protection for personal properties.
7. Implement or Update Accounting Software
If you are still using manual methods or outdated software, you have to implement or upgrade to a more robust accounting solution. Modern accounting software can save time, reduce errors and improve financial health.
Steps to Take:
- You need to look into cloud-based accounting software to help automate processes like invoicing, expense tracking and reconciliation.
- If you are already using accounting software, ensure it is updated to the latest version and integrates with other tools you use.
Bottom Line
Preparing your finances for the New Year is one of the most important tasks you will tackle as a small business owner. By following this year-end accounting checklist, you will ensure that your financial records are accurate, your tax obligations are managed and your business is aware of growth in the coming year. The above mentioned steps will help you avoid costly mistakes and position your business for success in the upcoming year.