One of the most complicated aspects of running a successful business is properly managing your finances, and all of the documentation, filings, etc. that comes with them, yourself. It’s one of the reasons that so many small business owners outsource their bookkeeping and accounting to local or national accounting professionals.
However, if you are committed to taking the do-it-yourself approach to accounting for your small business, having an end of year checklist is crucial. In today’s blog from the small business accounting experts at Innovative Accounting, we’ll take a look at the items that need to be on your end of year accounting checklist.
If you decide that you do want help with professional small business accounting services, sign up for Innovative Accounting’s bookkeeping and accounting packages, or get in touch with our team today, and let us know how we can help.
WHY AN END OF THE YEAR ACCOUNTING CHECKLIST MATTERS
Your end of the year accounting checklist is one of the most important components in your business finance toolbox.
First and foremost, your checklist will help ensure that you have everything you need to begin preparing your taxes and minimize the risks of audits or other frustrating IRS actions. It also provides you with a comprehensive review of what you managed to accomplish financially over the course of the year.
Were your projections met? Did your business grow the way you planned for? And if not, what are the clues you can find to effect positive changes in the coming year? And, the coming year is where the real importance of your annual accounting checklist comes into play. Without knowing how last year went — what worked and what didn’t — you have little hope of making successful decisions based on outcomes, trends, and other reliable and accurate data.
Item 1: Reconcile Credit Cards and Bank Statements With Your Bookkeeping
The first thing to do is to take the time to reconcile your credit card and bank statements with your monthly expense and income reports. In an ideal world, this is happening on a monthly basis so you don’t fall behind, but we all know that falling behind or missing a month or two due to business-related or personal time constraints does happen. Now is the time to get caught up and catch red flags.
Make sure to go through all of your bank statements (for each individual account) and individual credit card statements, one by one, and check them against your income and expense reports. Make sure to look for amounts that do not match, were missed, or are improperly classified within your accounting database or reporting system.
Item 2: Stand Back, Consider The Big Picture, And Note Areas Of Inquiry/Opportunity
The end of the year isn’t just a good time to reflect on the previous year, it’s the right time to do it. Month over month, it can be difficult to assess long-term goals and outcomes, but by the end of the year, you have a set of 12 major, and infinite minor, data sets to reference in regards to the success of your goals. Take a couple of hours to review your financials from a high level and ask the following questions:
- What did we do well this year?
- Where is the room for improvement this year?
- What goals did we achieve this year?
- What goals did we fail to achieve this year?
Answering these questions will help you plan for the coming year, stay focused on what matters, and provides an excellent springboard for agenda items to bring to the team at the next management or staff meeting.
Item 3: Plan For The Future In A S.M.A.R.T. Way
Planning for the coming business year is the most important aspect of your end of year checklist. For the DIY small business bookkeeper and accountant, it’s important to be S.M.A.R.T. about how you set goals.
- Specific – Specific goals provide direction and set the stage to achieve the rest of this DIY model of planning. For example, setting a goal of cutting costs is not as specific as setting a goal of cutting costs by 3%.
- Measurable – A specific goal is usually a measurable goal, so oftentimes, this piece of the plan comes easily. However, it is also important to determine when you will measure achievement (monthly, quarterly, or at the end of year) and how you will measure them.
- Attainable – Setting attainable goals is crucial to enacting effective change in your business. This is harder for some than others. If you find yourself wanting to set tough to reach goals, we recommend setting two different goals: one highly attainable goal and once “stretch” goal representing your ideal outcomes.
- Relevant – Goals should be created and prioritized based on their relevancy to your business. While it’s noble to want to create the goal of hiring three new employees, this is likely the byproduct of achieving more relevant goals such as cost reductions, revenue increases, etc.
- Timely – Setting timely goals is important but is different than determining when to measure goal progress. We recommend primarily creating goals that can be achieved on a monthly or quarterly basis, with one or two overarching annual goals for your business.
Item 4: Budget
Having a budget for the upcoming year is an important tool for helping you achieve the goals you have set. Some small businesses develop a budget based on last year’s financials, some craft it as a team, based on departmental input — but no matter how you prepare your monthly, quarterly, or annual budgets, having it completed and ready to apply on 1 January is important.
Item 5: Inventory
Whether you use your inventory reporting for helping to balance your books, track loss and theft, provide insurance documentation, or all of the above, prioritizing this activity at the end of the year is a must-do.
In some instances, delaying inventory until the start of the new year is okay, but typically, you want to have your counts completed and verified by 31 January.
Item 6: Review Accounts Payable And Accounts Receivable
Another important item on your end of year accounting checklist should be a complete review of your accounts payable and accounts receivable.
For your accounts receivable (AR), go through and verify that all of your billable services and goods have invoices that have been sent. If they have not, this is the time to get them out and make a phone call to let clients know that an overdue bill is on the way. Not only will this dampen the surprise, but in some cases, it can help you secure revenue before the end of the year.
For your accounts payable, make sure that you have no outstanding invoices due to vendors, contractors, or other professional partners or providers. Although you may not love catching up with overdue expenses right before the holidays, it’s important to go into the new year with your books as balanced as possible.
Item 7: Tax Planning
Tax planning is essentially reviewing everything you are doing on your end of year accounting checklist from a tax-oriented perspective with the ultimate goal of reducing the amount of taxes your business must pay.
There are lots of ways to reduce the amount of tax you will owe in the coming year but in general, reducing income and increasing expenditures before the end of the year is the goal, as counter-intuitive as that may seem.
Some marketing expenses, service expenses, and licensing costs — although not all — can also be deducted from your taxes.
Tax preparation is the single hardest element of year-end accounting that DIY business owners face. There are many laws that can be taken advantage of, as well as many that need to be heeded to avoid penalties or audits. If you’re not 100% confident in your ability to successfully maximize your tax planning, then we recommend outsourcing this element of your end of year accounting checklist.
Get Accounting Help From The Professionals At Innovative Accounting
If you run into challenges that are beyond your ability while completing your end of year accounting checklist, decide that you are finally in a financial position to hire outside help this year, or simply just don’t have the time to commit to doing it right, then let the small business accounting experts at Innovative Accounting help this year. Get in touch with us today to get started.
