The end of the year is a busy time for a host of reasons. Prepping for the holidays, making time for family, and planning for the new year keeps most of us busy through January 1 and beyond. As a small business owner, you have an even longer list of things to think about at the end of the year. This list includes things like financial statements, taxes, and employee incentives.
It can be tricky to balance work and life toward the end of the year. But devoting some attention to your business not only helps you end the current year on a high note, but also sets you up for success in the new year.
Use the following checklist to ensure you take care of business tasks before year-end. With these tasks off your plate, you can turn your attention to the things that matter most.
Managing your financial records is critical throughout the entire year, but even more so in December. By maintaining accurate, clean records, you can more accurately predict what the new year has in store for your business. And you’ll be better prepared when tax time rolls around. Here are a few accounting tasks you should take care of before December 31.
- Run a few standard financial reportsThe end of the year is a great time to assess where you stand financially and how your current financial situation compares to previous years. Use your preferred accounting software or system to generate a financial report. This report typically includes an income statement, a balance sheet, and a cash flow statement.
Your income statement, also known as a profit and loss statement, is key when it comes to understanding your profits. This financial report is the best way to see, at a glance, where your business stands financially and what your outlook is like for the new year. If your profits are lower than expected, you may want to make some changes as you head into the new year. If your profits are higher than expected, it might be a good time to make some larger purchases for which you can record future depreciation.
It’s always a good idea to speak with an accountant before making big purchases. An accountant will make sure you have the cash on hand to make the purchase and help you understand depreciation rules.
- Analyze cash flow statements
A cash flow statement records how your money was spent throughout the year. Cash inflows equate to income. Cash outflows are business expenses. Your goal is to generate more money than you’re spending. Toward the end of the year, it’s a good idea to analyze your cash flow statement to identify cash flow trends throughout the year.
Cash flow problems happen for a variety of reasons. The faster you can identify the problem, the faster you can rectify it. It’s important to note that net cash outflows don’t necessarily indicate that a business has a cash flow problem. Cash flow becomes a problem when outflows exceed inflows. To calculate cash flow, separate cash flows into three specific activities:
Cash flow from operating activities (revenue and expenses)
Cash flow from investing activities (assets purchased and assets sold)
Cash flow from financial activities (loans and repayments)
The cash flow formula adds a beginning cash balance with net changes in each activity to determine the ending cash balance.
- Verify vendor information
A lot has changed in your business this year, and the same goes for your vendors.
At the end of the year, verify that the contact information, including phone number, email address, and contact name, are still correct for each of your vendors. Purge the system of any inactive vendors or inaccurate information. If time permits, evaluate your vendor relationships and look for opportunities to negotiate better deals in the new year.
- Reconcile accounts receivable
Accounts receivable is the amount that your customers owe you after purchasing your goods or services on credit. It’s a running list of invoices still unpaid and clients that still owe money for work already completed.
If your list is longer than you’d like it to be, you’re not alone. U.S. business owners averaged over $78,000 in outstanding receivables in 2019, according to a QuickBooks Cash Flow survey. More than half of these business owners say not getting paid on time is their biggest cash flow pain point.
Calculating your accounts receivable turnover ratio can tell you how efficiently your business collects revenue. A higher ratio indicates that your customers pay their debts quickly. A lower ratio indicates that your collections procedures could use some work.
No matter what your ratio, if you have outstanding receivables, it’s a good idea to collect past due payments before the end of the year. Reconciling accounts receivable boosts your cash flow and allows you to start the new year without outstanding invoices.
- Double-check payroll and benefits
It’s better to stay on top of any issues or corrections that need to be made to your payroll before year’s end. Ensure that taxable fringe benefits, such as third-party sick pay or a company car, are accounted for. Other benefits that are easy to forget include educational reimbursement, health and life insurance, and transportation subsidies.
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