As the end of the year approaches, paperwork is on the top of most business owners' lists. This isn't the favorite activity of most, but making sure everything is in order not only helps you know where you stand financially—it also makes the upcoming tax season much less stressful to get through. Having a checklist of tasks that need to be done can make this daunting task much easier. Let's get started.
This is the time to make sure all your accounts are up-to-date and show no discrepancies. Gather bank statements, credit cards, lines of credit, and loans and go over the statements line by line to see if there are any obvious problems that didn't get caught in the course of everyday bookkeeping. Make sure all of the accounts are in agreement with what your books are showing. If there are issues, address them immediately.
Clean Up Accounts Receivable and Accounts Payable
Go through your invoices and collect any money that has yet to be paid. Send reminders to those who haven't paid yet and try to work out a repayment plan. Next, check your bills and make sure you haven't missed anything. Finally, check your books against the invoices, both incoming and outgoing, to make sure they all line up.
Update Your 1099s and Other Payroll
Payroll is normally one area that is fairly easy but there are a few things to check. It is common to keep up with the majority of payroll issues throughout the year so that sending out the year-end forms is easier.
For anyone who isn't on regular payroll and you paid $600 or more for their service, make sure you have a W-9 on file with correct contact information. Prepare the 1099 forms you will need to send out for their tax records.
Check that all your regular employees have a W-4 on file. Take time to double-check current addresses and make sure you have the correct social security number. Prepare the W-2 forms that each will need for their taxes. Don't forget any employees who may have left during the year.
This is often the most overlooked task. It is important to know what you have on hand in order to plan for future business. This will also make it easier to assess your assets. Take a day to go through your inventory by hand to make sure all is in order.
Let's face it, ideally, we have a file system in place for receipts that keeps them organized at all times. Unfortunately, we don't live in an ideal world. Take time to gather all receipts and organize them in files by type of transaction. You may find you have a better chance of claiming expenses and that will help save on taxes in the long run.
Prepare Financial Statements
There are a few key financial statements that you'll want to pay attention to this time of year.
Profit and Loss
Items included on this statement should include revenue, tax expenses, operating expenses and depreciation on assets. The depreciation value is often overlooked but can be very important. This statement will show at a glance how well your business did for the year.
The cash flow statement is more to help you plan for the coming year. If you can get an idea of what periods show heavy activity and what times are slow, it will help you better prepare inventory, hire staff, and decide operating hours. All will help you realize better profit over time.
Your balance sheet gives a picture of what your business is worth. It is often a factor used when banks decide whether to give you a line of credit. You need to list your assets (what you own), liabilities (what you owe) and equity, which is the money you have left over after your expenses are all paid. The formula should end up with Assets equaling Liabilities plus Equity (A=L+E). If this formula is uneven, you need to find the errors that have been made in Accounting.
Do a Tax Review
Now is a good time to sit down with a CPA and determine what amount of taxes you can expect to pay in the upcoming tax season. By doing so now, you allow yourself a few months to get the money together and not have to find it all at the last minute.
Evaluate the Process
Once all the work is done, sit back and evaluate the process. Is there anything you could do now to make things easier next year? Learning what works and what doesn't saves money and stress and allows you to feel more confident in your business choices. Are there areas that you might be able to automate or utilize accounting software?
Now is the time to consider options. Accounting may never be your favorite business activity, but it doesn't need to be a source of dread. If you're ready to get started, be sure to contact our team.