Closing out the year in Bookkeeping
Updated: Dec 5, 2020
The end of the year for many business owners is quite hectic. From trying to balance a heavier volume of sales to spending time with family during the holidays, it could make you feel like you are spreading yourself thin. It can be tricky to balance work and life near the end of the year, but it is important to dedicate some time to your business so you could start the new year off on the right foot.
Using the following checklist, you can ensure that you have everything squared away and you will be able to wrap up things for the end of the year.
1. Financial Statements
The end of the year is a great time to analyze where your business currently stands with its finances. The statements you typically need are the income statement, balance sheet, and cash flow statement.
Your income statement, also known as the profit and loss statement, will summarize your income and expenditures for the year. This statement will give you a quick rundown of where you currently stand and what to possibly expect for the next year.
Another curial statement is the balance sheet. This statement lists your assets, liabilities, and equity within the business. The balance sheet will help you give you an idea of where the business is.
Lastly, the cash flow statement shows your spending throughout the year. Cash inflows indicate revenue while cash outflows indicate business expenses. This statement helps identify cash flow problems allowing you to remedy them. An important note is that net cash outflow does not necessarily mean that the business has a cash flow problem.
If you have any questions regarding your financial statements, please reach out to your advisor and we would gladly assist.
2. Reconcile Accounts Receivable
Having low cash flow could hinder your ability to smoothly transition to the next year. It is always best to check any outstanding invoices that clients have yet to pay. Running a report on this will allow you to see unpaid invoices and clients that have yet to pay for completed work. It is imperative to keep an eye on outstanding invoices because the longer it takes to collect, the more money you are losing.
Using the accounts receivable turnover ratio will tell you how efficiently your company collects revenue. To calculate accounts receivable turnover ratio, add the beginning and ending accounts receivable to get the average accounts receivable for the period and then divide it into the net credit sales for the year.
Accounts Receivable Turnover Ratio = Net Annual Credit Sales ÷ (Beginning Accounts Receivable + Ending Accounts Receivable)/2)
Having a high ratio indicates that you can collect revenue quickly while having a low ratio indicates that your collection process needs some work.
Collecting outstanding receivables will help with cash flows and will allow some peace of mind entering the new year knowing that clients have paid you back for your goods or services.
3. Collect Forms
If you employed any employees or independent contractors throughout the year, make sure that you have the correct forms on file. Verify their contact information, including contact name, phone number, email address, and address.
If you have employees, make sure you have Form W-4 on file for each employee. Ensure that you have one for each employee you have hired and those that have been terminated throughout the year as well.
If you paid an independent contractor or vendor $600 or more you need them to fill out Form W-9. Using this form, you will be able to issue their 1099-NEC for their services.
4. Check Payroll and Benefits
Take a look at payroll and benefits to ensure that there are no mistakes, and everything is accurate and up to date. Look at your books to see if it is possible to give raises or bonuses to your employees at the end of the year.
Though closing out of the end of the year may feel discouraging, it is manageable with a checklist. After completing these steps, plan what steps you would like your business to do for the upcoming year. If this all feels too daunting or if you have not even kept any records for the entire year, schedule an appointment with your advisor and we will gladly help devise a plan for you and your business to get you caught up or help you in the future. The more planning you can do throughout the year, the easier the end of the year will be for you.