Preparing for Year End
For many of us, the holidays are one of the busiest times of the year. While I love the traditions and activities (especially now as a mom and magic maker to two young girls), I also long impatiently for the first week of January, when I can take a day of uninterrupted quiet to reflect on the changing year. Remembering my wins and growth over the last year, and considering what goals I want to set for the next, is one of my favorite traditions. As a new business owner, I have even more to reflect on this year.
Most businesses need to prepare their books at the end of the year for tax returns, and this is also a great time to use the information that you prepare to reflect on how your business performed this year, what strategies have worked and what didn’t, and think about goals for the next year and beyond. Read on for the steps that you and your bookkeeper should take to close out the year and get ready for the new one.
Reconcile your bank and credit card accounts
This is an activity that is best done monthly to make sure that you catch issues on time, but if you got behind at all during the year, this needs to come first. Record all of your transactions and match them to your bank and credit card statements. If you are using an accounting software like QuickBooks, you should check the balance of your accounts to your statement. If they don’t match, figure out why and make any corrections.
Review your Accounts Receivable detail
This is the list of customer invoices that have not yet been paid.
Reach out to customers to collect on any overdue invoices.
Do you see any that you are sure were paid? Make sure that the payment received in your bank account was properly matched to the invoice.
If there are old invoices that will probably not be paid and you no longer want to pursue collecting, now is the time to consider writing them off - creating an expense on your income statement.
All of these actions are key to making sure that you don’t overpay on your taxes because of duplicated revenue, or revenue that you could not collect.
Review your Accounts Payable detail
The opposite of your Accounts Receivable, this is the list of bills that you have received but not yet paid. Does this list look accurate to you? If you have items on here that you are sure you have paid, you probably need to find the bank transaction and match it to the bill to clear it.
After making sure that this list is up to date, now might be a good time to review your vendor relationships. You may be able to re-negotiate pricing based on your purchase volumes over the last year.
Do an inventory count, and review for excess or obsolete inventory
If you hold inventory on your books, now is a good time to make sure that the balance is accurate. Depending on your business, this could be an easy or very complex process. Do a full physical check and make sure that each item on your books is accounted for and still sellable. Write off shrink and items that are obsolete and need to be discarded.
Add any missing expenses
I’m looking at you, virtual workers and sole practitioners! Go digging for any business expenses that were paid for through personal funds. Every dollar that you find is a direct reduction of the basis for your tax liability, so this is not a step to skip. Check in with your tax preparer on whether you can deduct home office expenses, and gather all details for that. You may or may not want to record these on your books – your bookkeeper can help you decide.
Your bookkeeper should also be performing more advanced tasks like recording depreciation and amortizing prepaid expenses, if you have any.
Review your financial reports
Carefully review your financial reports to ensure they are accurate and complete. Looking at your balance sheet for reasonableness, and trends in your income statement may point out errors that you didn’t already uncover. Accurate and comprehensive financial reports provide valuable insights into your business's performance over the past year, helping you highlight areas of success and spot any issues that need addressing. This thorough review also prepares you for a smooth and stress-free tax season.
Celebrate your wins
Reflect on the goals you set at the beginning of the year and take pride in what you’ve accomplished, big or small. Whether it's reaching a revenue milestone, expanding your customer base, or successfully launching a new product, each win is worth celebrating. Share these successes with your team to foster a positive work environment and inspire continued dedication.
Plan for next year
With a clear understanding of your past performance and successes, it’s time to look forward. Set new goals for the upcoming year, focusing on growth and areas needing improvement. If you’ve already drafted a budget before the holidays, you might need to revisit and update with any new insights. Consider any changes in the market or industry that could impact your business, and prepare to adapt accordingly.
As we approach the end of the year, taking the moment to reflect not only on your personal achievements but also on your business milestones can set the stage for a successful and productive new year. The holidays offer a perfect blend of celebration and contemplation, providing the ideal backdrop to both cherish your successes and plan for a brighter future.
PS. Do some of these steps seem challenging? They are! I’ve talked to many business owners who are surprised about the complexity of keeping their own books – a common misconception is that it should be easy to do on your own. But unless you’ve had specific training in accounting, tasks like these and accounting software like QuickBooks are not something that most business owners can take on without a skilled bookkeeper. Often times, the cost of hiring help will be far outweighed by the tax savings alone, not to mention the hidden savings of having clear financial goals to strive for, and reduced time and stress over this intricate area of your business.
If you find yourself needing support this season, please reach out to schedule a call with me. I still have space to help a few businesses get on track in time for tax season, and we can start off 2025 with a fresh understanding and perspective of your financial situation.