As the end of the year approaches, you’re probably extremely busy with holiday plans and visiting your family. But now is the perfect time to your evaluate the financial health of your business and plan to start the new year with a solid plan. Completing a year-end financial checklist might sound like a daunting task, but it only takes some discipline, easy-to-use tools and perhaps the assistance of a financial professional.
With that in mind, here are the must-do steps to check off your list this December as the year comes to an end.
Get Your Financial Records in Order
Before you can identify the financial standing of your business, you must get all of your financial records in order. If you have been meticulous and have kept all of your records and receipts in an organized file or if you have an accountant who organizes your records throughout the year, this should be a breeze.
If you’re new to the world of small business or freelance, you may not have a system in place that keeps your financial records in a singular file system. If you have receipts stuffed in shoe boxes and drawers, you should put them in a file system that makes sense. You’ll need to reconcile bank statements and credit card accounts to have a clear picture of your business’s finances. If there are outstanding invoices clients owe you vice versa, you should collect and/or pay the money before the end of the year.
Don’t feel overwhelmed by this task. Fortunately, there are many useful bookkeeping tools that are specifically designed to help self-employed tax filers. For example, QuickBooks Self-Employed can help you track expenses effortlessly year round and help simplify the entire tax-filing process whether you’re doing your taxes yourself or have an account.
Determine Your Financial Position
The guidance of a professional accountant can be very helpful if you haven’t kept detailed records for every expense you have made throughout the year. A professional accountant can also help you to determine which records are important and which are not important.
An accountant can help you prepare year-end reports that your business will need. These reports include:
- Balance sheet – A balance sheet gives a snapshot of your assets, liabilities and the capital of your business at a particular moment in time.
- Income statement – This statement itemizes revenue and expenses in order to determine whether your business has been profitable.
- Cash flow statement – This summarizes where cash has flowed in and out of your business.
Double-Check Your Financial Records To Ensure They Are Accurate
Once you have put all your records and statements together, take the time to check that your statements are accurate. As you go through this process, you may realize that there are receipts that are missing or your balance sheet is inaccurate based upon your receipts. Simple math errors can distort your balance sheet, income statement, and cash flow statement.
Financial accuracy is important, and it’s something that you can’t rush through. If you can find and correct errors before the end of the year, you will have a clear picture of whether your business is profitable or not. If you don’t have the time or confidence to perform this task, seek the help of a financial professional like a tax advisor or accountant. Investing in the right financial professional might seem costly compared to doing it yourself but will have a huge ROI when it comes to your tax savings.
Backup Your Digital Records
At the end of the tax year, make sure you back up all the data that’s stored on your computer. Take the time to copy and store all of your spreadsheets, reports, and statements. It’s a good idea to have more than one digital copy and to store this data in separate locations. For example, you may save all your files to a cloud-based system and also to an external hard drive. It is also a good idea to keep a paper copy and to store it in a file.
Make Sure Your Inventory Records Are Accurate
If you have physical products, take inventory of what you have in stock and what may need to be replaced. If you have a sole proprietorship such as a freelance business, check the condition of your computer and office furniture or supplies.
Will your computer or software need an upgrade soon? Does your website need an overhaul? Take the time to review your website and evaluate its performance. Make sure all your links are working. You may need to consider getting estimates for hardware, software or web design.
If you have other people working for you, evaluate whether you have adequate staff to cover the day-to-day tasks that keep your business afloat.
Review Your Financial Position
Once you are satisfied that your records are complete and accurate, it’s time to review how your business is doing financially.
You may have made some bad decisions at some point during the year, or you may have fallen short of your financial goals. There are few if any business owners who don’t make missteps, particularly in the early years of their businesses. Consider your mistakes lessons that you have learned from and move forward.
It’s also important to analyze your finances from a tax perspective. Your goal is to reduce the taxes that you have to pay for your business and there are some steps you may take that may help with this goal. You need to know what business expenses can be written off so that you reduce the financial hit that taxes can make on your business. For example, if you have some upcoming expenses such as an equipment purchase, you may want to do this now in order to use all or part of the purchase as a deduction.
Your accountant can help you strategize in this way in order to reduce your tax burden as much as possible.
Plan for the Coming Year
The final step of your end-of-year financial checklist is to make a clear plan for the coming year. Set a goal for how much money you intend to make in the coming year and what changes you are going to make in order to accomplish this goal.
Make a budget to decide how much can be spent on expenses for your business each month. Consider where costs may be cut and what strategies you can take for a higher profit margin. Create a plan for how you are going to grow your business in a way that is aligned with your vision.
Business success is a result of effort, persistence and most of all having a clear plan. The end of the year is a good time to look to the future and to prepare for the year ahead in order to meet the goals you have set for your business.