The fiscal year end is the perfect time to close out your business books and set financial goals for your small business.
Read on for 11 expert bookkeeping checklist tasks to make sure you hit the ground running at the start of the new year, or watch this video to learn more.
Also known as year-end closing, year-end bookkeeping is when your company closes out its accounting period for the previous tax year. Tasks usually include:
But when is the end of your company’s fiscal year? For accounting purposes, many small businesses end their fiscal year on December 31 for business registration and tax documents, but the year’s end can happen anytime. Choosing a date when business is slow gives you more time to complete your income tax return and closing process, and look critically at financial documents to plan for the following 12-month period.
Keep your books current and use them to set goals and grow your business in a time frame that works for you. Your business relies on this documentation to adjust, prepare for taxes and audits, and forecast.
Why bother with a calendar end-of-year accounting checklist? Because mistakes happen. Sometimes, important tasks are forgotten. However, documents need to be gathered and sorted for compliance and tax reporting purposes.
Annual bookkeeping can also help you see challenges and gaps in your business that you could miss month to month. Here are a few challenges you may encounter:
“Small businesses should focus on maintaining continuous and accurate records, leveraging technology to automate processes, and properly categorize their expenses to reflect the business’s operations better,” says Michelle Delker, a seasoned CFO and CPA for The William Stanley Group. Delker has overseen year-end accounting for Fortune 500 companies and private sector small businesses.
Delker has a list of advice and actionable tasks that business owners should follow for year-end bookkeeping — just part of the essential end-of-year tasks that go into owning a small business.
In a perfect world, you keep immaculate books year-round. “Year-end bookkeeping for small businesses should be an ongoing effort throughout the year — it should not be a year-end race,” says Delker.
But if you’re a new business owner, you’re likely learning as you go. You may need to put in extra work to complete your fiscal year-end bookkeeping. Create a timeline of deadlines, set up reminders for significant tasks and communicate them to everyone involved.
Next year, space out your bookkeeping tasks throughout the year. “By regularly inputting and reconciling transactions, businesses can better manage their finances, reduce stress come tax season, and make informed decisions based on real-time data,” says Delker.
In her CPA firm, Delker finds that technology is key to tackling bookkeeping. “Adopting digital tools and accounting software is advantageous in streamlining the recording process, making reconciliation easier, and generating financial statements.” She particularly likes using accounting software to automate reminders, invoices and payroll wage calculations.
If it’s your first time tackling fiscal year-end accounting (or you don’t yet have a system in place), you may need to gather your financial documents. Typical items a small business will need include:
Unless you’re a solopreneur, you have year-end tasks related to employees and payroll to complete, including:
Reconciling payroll requires careful attention to detail, as it involves calculating wages, taxes, and any accrued benefits. You must also determine if any employee has unused vacation or sick leave. Depending on your company, this time off may need to be accounted for in the final paycheck or carried over to the next year.
Similarly, ensure any employee bonuses, commissions and overtime should be calculated and included in the final paychecks. These payments can significantly impact an employee’s overall compensation.
Businesses must also prepare W-2 and 1099 forms. While you have until January 31 to distribute these documents and file with the IRS, you can prepare them for distribution right after the new year and have one less thing to worry about.
Delker thinks small business owners should consciously categorize expenses. “Accurately categorizing expenses aid in understanding the financial health of the company, allowing for more effective tax planning strategy.”
She explains that your books must “reflect the true nature of their business operations. It’s crucial to distinguish between cost of goods sold, operational expenses and capital expenses.”
One of the biggest challenges of closing out your books is how fluid your bookkeeping can be. To close out your books at the end of the fiscal year, try to collect invoices.
Communicate effectively with clients and customers. You don’t have control when others pay, so build a buffer into your schedule. It’s also possible you might not get paid, and you need to account for that in your financial records as well. (Read our article on dealing with clients who refuse to pay.)
“Automated systems can keep track of both sent and received invoices, ensuring nothing slips through the cracks,” says Delker. “With the automated system, the invoices can be collected, organized and ready for bookkeeping in no time, making the year-end process more manageable.”
Everything in your financial records should match with accounts. If not, it’s a sign of a mistake. This process is called “reconciling” — matching up the bottom line in your accounting with the bottom line in your accounts.
Start at the beginning with your balance sheet. Your prior tax return should list last year’s balance. This should be your current year’s beginning balance.
From there, start reconciling expenses and income (also known as accounts receivable). Here are some of the places you should look while reconciling transactions:
Review inventory counts to ensure accurate financial statements and the balance sheet. Regularly reconcile inventory records to avoid surprises, as discrepancies may indicate issues with inventory management or accounting practices.
Once your accounting records match the money you have on hand in accounts, you have successfully reconciled your accounts receivable and accounts payable.
You can close your books once they have been reconciled and errors found.
Document outstanding invoices. Account for unpaid invoices in your fiscal year-end books. And monitor outstanding financials so you can start the new year in the green.
As the year ends, reviewing your business’s financial performance is essential. This involves analyzing critical financial statements to assess profitability, liquidity and solvency. Many accounting and bookkeeping tools, such as Quickbooks and Gusto, already include these reports, so you don’t need to build them from scratch.
Here are some key statements to review:
Reviewing these financial reports can give you valuable insights into your business’s performance and help you make informed decisions for the coming year.
Once you complete your year-end bookkeeping checklist, set clear and measurable goals for the coming year. This could include business changes such as expansion or retraction of a service or product, staff adjustments or reeling in spending, to name a few.
Once you close the books, you can also analyze your finances to plan for taxes and save money by reducing your taxable income.
Beyond financial goals, take the time to streamline your bookkeeping process. What worked during your fiscal year-end bookkeeping? What didn’t? Our number one bookkeeping tip is to develop an accounting system. This is a great time to refine your strategy.
If managing your business finances becomes a burden, partner with a bookkeeper, tax preparer or licensed accountant to manage the task. It’s an important job that can’t be left undone for any small business.
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Jessica spent over a decade working in education before moving into content marketing. She has worked on content marketing campaigns in the edtech, real estate, and personal finance sectors. She has a passion for working with companies that take the time to educate their customers. When she’s not working, she’s probably outside with her two kids.
