With the holiday season upon us, many business owners start to think about all of the necessary year-end bookkeeping and accounting tasks again. And while this is possibly one of the busiest seasons for your business, it's also important to accurately close the current books, and start preparing for the upcoming year.
That said, you can make these tasks less onerous by breaking down your year-end accounting tasks into three steps:
1. Bring Your Books Up-To-Date
As the year comes to a close, you need to have a strong understanding of your business’ financial situation. This means spending the extra time to bring your books up-to-date.
If you have a bookkeeper or accountant, give them time to create all of the necessary reports that are relevant for your business, and schedule a time to go through these reports together. This ensures that all parties have an understanding of where the business is financially. This step is also beneficial because once the books are up-to-date, it is much easier and cost-efficient to prepare your tax return.
2. Review the Books
Once you are confident that your books are up-to-date, it is time to review the financial health of your business with an accountant.
You'll want to go through documents such as the profit and loss statement and balance sheet to identify any year-end tax strategies that may be beneficial to the business. These strategies may include deferring income, making purchases, and contributing to a retirement plan.
At this time, you may also want to evaluate your current accounting system, and weigh the pros and cons of how you record and track your financial information. For smaller businesses, it may be beneficial to compare some of the different accounting applications to see if there is a better fit for the business. You can also take advantage of advances in technology to help streamline any inefficiencies.
As you review your books and your accounting processes, it may also be a good time to review your retirement plan, as well as your choice of business entity (for example, based on your finances this year, would it now be a good time to incorporate).
3. Close the Books
Now that you have your books up-to-date, and have a strong understanding of your current financial structure, it is time to close the books and start preparing for next year.
The transition to a new year is a great time to clean up the bookkeeping files, both physically and electronically. For example, closing out old accounts gives you the opportunity to manage and clean-up old customer accounts, as well as inactive vendors, employees, expense accounts, and even old bank accounts. In addition, a yearly review of your Chart of Accounts is recommended.
Year-end is also a good time to look back on the previous year’s finances and prepare a budget for the upcoming term. By planning ahead for tax payments, and identifying significant expenditures and estimated income for each month, you'll be better able to gain an insight into potential issues that may arise throughout the year.
*Please Note: It is strongly recommended that you engage your own tax advisor/accountant to review the above-noted year-end planning considerations before strategically engaging in the implementation of any of them.