The holiday season is full of obligations. In the midst of the present buying, Christmas caroling, and tree trimming, make sure you don’t forget about your year-end accounting.
Closing the books at the year’s end is an integral part of running a business. Year-end accounting is your way of making sure your business finances are 100% accurate before tax season. The process also helps you stay organized and informed, so you can set goals and prepare for the year ahead.
Here are seven helpful tips to manage your year-end accounting so you can get back to enjoying the holiday season.
1. Use Accounting Software
If you run a small business, gathering receipts in shoe boxes and printing dozens of Excel sheets for your accountant just doesn’t cut it. You need accounting software. There are many, affordable cloud-based accounting programs that are easy to use and can help immensely with your year-end accounting.
Not only will accounting software keep you more organized, almost all good accounting software has key year-end features like income tracking, expenses tracking, inventory management, and employee management. Accounting software also lets you run key accounting reports that you will need to close the books and file taxes in the spring.
If switching to a new accounting software seems too daunting for this holiday season, get a fresh start with the new year to help you close the books in years to come.
2. Update Your Finances
If you are already using an accounting program, make sure your finances are up-to-date. Add forgotten invoices, record missed checks, and make sure all expenses are accounted for. The best way of doing this is to reconcile your bank accounts.
A great tip to make year-end accounting easier is to reconcile your accounts once a month. This way, you only have a small amount of work to do at the end of the year.
3. Separate Personal and Business Expenses
Make sure you separate all your business expenses from your personal expenses. Failing to do this is one of the IRS’s most common reasons for a tax audit.
Several accounting programs, like Wave and Quicken Home & Business, allow you to easily separate personal and business expenses. Another trick to avoid this problem altogether is to open a separate business bank account.
4. Count Your Inventory
At the end of the year, do an inventory count to verify that the number of products you have on hand is accurate. This number affects the accuracy of your chart of accounts and is also needed for several tax forms.
5. Do Some Early Spring Cleaning
Closing your books is a great time to get organized, so you can put your best foot forward at the start of the new year. Go through your records and clean up your contacts and vendors lists. Verify your employee information and payroll taxes for the year. If you wait to get your employee’s new address until tax season, you may not be able to send out 1099s and W-2s on time.
6. Run Necessary Reports
Once all of your financial information is up to date, you’ll need to run a Profit and Loss Statement and a Balance Sheet. Carefully analyze both reports to ensure they are accurate. You can also take this time to run other key reports that your accountant will need for taxes like an Expense Report, Sales Tax Summary, Mileage Log, and Payroll Summary.
While you’re at it, take a look at other insightful reports like:
- Sales by Customer
- Sales by Item
- Statement of Cash Flows
- Budget VS Actual
The end of the year is a great time to reflect and look forward to what’s to come. These reports will provide valuable insight into your business’s performance over the year.
Start by seeing if you stuck to your budget and met your business goals for last year. Ask yourself what worked well and what didn’t. After analyzing these reports and your overall business finances, create a budget for the new year. Just as you spend time creating personal New Year’s resolutions, brainstorm new business goals for the year ahead.
7. Lock the Books
Many accounting programs have a helpful feature where you can actually close and lock your books. This trick ensures that no one can adjust or add transactions to a period that is already closed.
Before you lock the books, make sure you consult your accountant to verify that your books are properly balanced and give them the opportunity to perform last-minute journal adjustments.
By using these seven tips and staying on top of your finances throughout the year, you can quickly and easily close the books while preparing for an even more successful year to come.