In the same way you create checklists so you dont forget to do important tasks, you need a year end accounting checklist for your business.
There are a number of items that you need to complete to ensure a smooth financial transition into the new year. From officially closing your books to budgeting and tax planning.
In order to efficiently complete your year end accounting checklist, you should stay on top of your business finances throughout the year.
You accomplish this by maintaining up to date accounting records month-to-month.
Not only does this keep you informed of your profits or losses but it gives you a complete financial view of your business at year end.
Whether you outsource your small business accounting services or DIY, having a year end accounting checklist for your business can save you time, money and a headache later on.
The thought of putting together a year end accounting checklist may sound daunting, overwhelming or just plain boring.
But the truth is, what you do at year end sets the framework for the entire upcoming period.
Do you file taxes? What about budgeting? Or do you have employees or contractors that you pay throughout the year?
These are just a few important reasons why you shouldnt skip out on creating and following a year end accounting checklist.
You dont want to miss anything that could cost you later!
Lets examine the 7 year end accounting checklist items that will get your business off to the right start in the new year.
1. Make Sure Your Bookkeeping is Updated and Accurate
The very first item on your year end accounting checklist should be making sure your bookkeeping records are updated.
Maybe you let a month (or months) slip by, but year end is the time to catch up and tie those loose ends.
To ensure accuracy, you should reconcile each bank and/or credit card statement to what you have in your accounting records.
This is a sure fire way to catch any transactions that may have been double-counted or not counted at all.
Once your books are up-to-date, you should review each financial statement account to make sure amounts are correct and reflects all of your transactions for the year.
For example, if you spend $700 in office rent every month but your income statement shows only $1,400 in rent expense, then this is a red flag.
If you reconcile all of your bank/credit card statements, then this means you have some transactions that are incorrectly classified.
You may find that some financial statements are overstated, meaning its value is showing an amount greater than what you incurred.
Go through each line item on your income statement and balance sheet and review the transactions in each account for accuracy.
You may find that certain items were improperly classified.
2. Reflect on a High Level
As a business owner, it is easy to get wrapped up in the day-to-day operations of your business. You check emails, fulfill orders, speak with clients, negotiate deals, the list just goes on.
However, it is so important not to forget your vision and reflect on the ways you have or have not aligned your business with your vision.
Year end is a great time to reflect. Youre able to see things from a full circle perspective which can enlighten you as to the good or bad decisions you made.
What did you do well? Where could you improve? What goals did you achieve?
Answering these types of questions will help you make and continue to make profitable business decisions in the future.
This is why taking the time to reflect on the years events should be a part of your year end accounting checklist.
3. Set SMART Goals
Goal setting is a necessary part of business growth. And, year end is a great time to set them.
Setting the right goals will keep you motivated and focused. But what are the right goals? Well, your goals should be SMART.
- Specific. Goals that are specific are definite and leave little to no room for interpretation. Because specific goals are well defined, they give your business direction.
- For example, I want to cut labor costs by 5% compared to this year is a specific goal
- Measurable. Measurable goals are quantified by a numerical value like specific amounts or percentages. I want to cut labor costs by 5% compared to this year
- Attainable. Attainable goals are reachable and within the realm of possibility. Setting challenging, yet attainable goals are especially rewarding.
- Relevant. Goals that are relevant focuses on what is important. Relevant goals focus on improving areas of weakness or expanding areas of strength.
- Timely. Lastly, your goals should be timely. Goals should have a deadline. Otherwise, youd end up spending too much time trying to achieve one goal.
- A goal that is too short-term may not have enough time to be achieved and a goal too far in the future might be forgotten about. Instead, set monthly or quarterly goals.
4. Create a Budget
Its the end of the year and you reviewed your financial statements, reflected on the years events and set your goals. You might be thinking Thats it, right?
In order for you to reach your goals, you need a plan to get there. And, apart of that plan should be a budget.
We all know what a budget is. An estimate of future income and expenses for a set period of time.
But what you do with your budget is what makes it an important task on your year end accounting checklist.
Because you set SMART goals, they should be aligned with your budget.
Just like your goals, your budget should be broken down into smaller periods such as monthly or quarterly.
To help stay within budget, consider sharing your budget with your team.
In fact, they should be involved in the budget development process if they work closely in certain areas of your business.
Your team members can provide valuable insight into expenses in certain departments.
Year end is also a good time to compare your budgets to actual outcomes.
How did the budgets you created a year ago compare to the actual income and expenses this year?
With this information, you can create more accurate budgets for the upcoming year.
5. Take Inventory
If you sell products, count how much inventory you have on hand.
This also acts as a double check of the inventory value on your balance sheet. If you find discrepancies between the two, make adjustments where necessary.
Counting inventory does not have to be limited to the products you sell but can include the assets and supplies you have too.
Count your computers, printers or anything else in your workspace. Keep track of missing or broken items and keep these items on your radar in the new year.
6. Review Your Accounts Payable and Accounts Receivable
Another item on your year end accounting checklist is to review your accounts payable and accounts receivable reports.
Throughout the year, you may not always keep up with who owes you what or who you owe. But year end is the time to clear up any confusion.
You can start by reviewing your aging reports of both accounts receivable and accounts payable.
You might find invoices in accounts payable that youve paid or amounts in accounts receivable that havent been billed for.
In either case, you should clear up any differences between whats on these reports and what has actually occurred.
7. Tax Plan
Last, but definitely not least, tax planning should be on your year end accounting checklist.
Tax planning is an analysis of a financial position from a tax perspective.
The purpose of tax planning is to pay the least amount of tax as the law allows.
Year end tax planning gives you the opportunity to position certain transactions to save you in taxes.
One tax planning strategy is to accelerate expenses you were planning to buy early in the new year.
Maybe you have software subscriptions that need to be renewed. Renew them before the end of the year.
What this does is increase your expenses and lower your taxable income.
Defer sending invoices to customers, if you can. If you can wait to send invoices until January, your taxable income will be lower than if you sent them in the current year.
There are more in-depth tax strategies you can employ to save big on your taxes. Make sure to meet with your small business tax accountant to optimize your tax plan.
Remembering to do all the tasks on your year end accounting checklist or that you should even have a checklist may slip your mind during the holiday time.
Write it down. Set reminders.
What you do at year end for your business is really important to your success in the New Year.
Sometimes you may not have the time or expertise to do everything yourself which is why you should have an accountant on your side to help you through your beginning, during and year end accounting process.