The end of the year is the perfect time to close out your business books and set financial goals for your small business. Read on for expert advice on completing everything on our year-end bookkeeping checklist. It’s an essential business practice to make sure you hit the ground running next year.
Jump ahead to learn more about:
Also known as year-end closing, year-end bookkeeping is when your company closes out its books for the year. Tasks usually include:
Many small businesses end their fiscal year on December 31 for their 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 year-end bookkeeping checklist and look critically at financial documents to plan for the following year.
Keep your books current and use them to set goals and grow your business. Your business relies on this documentation to adjust, prepare for taxes and audits, and forecast.
Why bother with year-end bookkeeping? Because mistakes happen. You forget important tasks. And for compliance and tax reasons, documents need to be gathered and sorted.
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 year-end bookkeeping. Create a timeline of deadlines, set up reminders for significant tasks and communicate them with 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 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:
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. Try to collect invoices to close out your books at the end of the year.
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:
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 year-end books. And monitor outstanding financials so you can start the new year in the green.
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 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 or a licensed accountant to manage the task. It’s an important job that can’t be left undone for any small business.
NEXT helps small businesses in 1,300 professions get just the right insurance coverage they need. We make business insurance easy with 24/7 access to your policy via web and app to help you manage your coverage.
Start a quote, customize your options and access your certificate of insurance online — all in about 10 minutes.
Start a free quote with NEXT today.
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.
