The end of the year comes fast for small business owners. You’re juggling customers, employees, vendor bills, and last-minute sales while the accounting tasks stack up. The problem for many small business owners is that year-end tends to be the busiest time of the year, leaving those tasks on the back burner.
It can seem overwhelming, with so much to complete in so little time. Where do you start? What needs to be accomplished? How do you prepare for the new year?
The best way to stay ahead is with a clear year-end bookkeeping checklist.
Below, you’ll find a practical small business financial checklist to help you close out the year with fewer surprises, fewer headaches, and a stronger start to January.
Jump to a section:
1. Get a clear picture of your profit and loss statement
2. Clean up and reconcile the books
3. Organize tax deduction documents and reimburse yourself for business expenses
4. Handle S-Corp owner benefits
5. Collect W-9s and send 1099s
6. Review expenses and trim the fat
7. Set a business budget for the new year
8. Set sales goals and projections
10. Schedule a tax review with your CPA
1. Get a clear picture of your profit and loss statement
Your profit and loss (P&L) should tell the full story of business income and expenses. Remember, not everything that moves money out of your bank account should show up on the P&L. Two common examples: personal expenses paid out of the business account and distributions or owner withdrawals.
Loan principal payments can also be misleading. If you’re making payments on a loan, its balance will be reflected your balance sheet—the loan is not an account on your P&L. That said, the interest expense associated with the loan should show on your P&L.
Example: You bought a company vehicle, which is titled in the company name. The loan should show as a liability on your balance sheet. Loan principal payments on that vehicle shouldn’t show on the P&L, though the interest does.
Pull financial reports from your accounting software regularly to make sure you know where you stand before the year closes.
2. Clean up and reconcile the books
Messy books are costly. Your CPA will have to spend extra time cleaning them up, which means higher fees. Review important financial documents, like your income statement, balance sheet, and cash flow statement, with a year-end sweep:
- Reconcile bank accounts and credit cards
- Match loan balances to lender statements
- Review uncleared checks and resolve them
- Make sure payroll and sales taxes are fully paid
- For self-employed owners, check that estimated taxes are up to date
If you use cloud-based accounting software, like QuickBooks or Xero, lock down your books for past periods. Doing so prevents accidental edits to past entries and protects your historical records.
Pro tip: If you’re struggling to find the time for bookkeeping every month, send us a message. We offer business accounting services and can help you migrate to the cloud to allow for virtual, secure collaboration.
Streamline your month-end accounting process with our comprehensive checklist.
Download our free Month-End Accounting Checklist to take control of your month-end close.
3. Organize tax deduction documents and reimburse yourself for business expenses
Many business expenses are tax-deductible. No matter how small they may seem, expenses can add up over the year and help to reduce your tax burden. Ensure you have receipts and bills saved or uploaded to your cloud accounting tool for easy access.
If you’ve paid for business expenses out of your personal account, reimburse yourself before closing the books in order to keep personal and business finances clean and ensure deductions are accurate. Don’t forget about your mileage log if you use your personal car for work.
If you purchased any assets, ask for your CPA’s input on what can be capitalized and depreciated. Don’t forget to include documentation of related loans.
Small business tax deductions – free download!
We’ve put together a comprehensive guide of the top small business tax deductions that will leave you feeling relieved this tax season.
4. Handle S-Corp owner benefits
S-corp shareholders who hold 2% or more of the company need to report their benefits (such as health insurance or personal use of a business vehicle) on their W-2s. If your payroll company handles these, make sure they’re aware of the appropriate numbers.
You may also be interested in: The benefits of using a payroll app.
5. Collect W-9s and send 1099s
Two tasks that often fall through the cracks are W-9s and 1099s. Collect W-9 forms from any contractor or freelancer you paid $600 or more, and then issue a 1099 in January. Missing this step can mean fines from the IRS, not to mention frustration for your contractors.
Getting W-9s promptly can make a significant difference in your year-end accounting process by saving you from last-minute scrambles and preventing costly mistakes. Requesting W-9s promptly also shows professionalism, ensures compliance with IRS regulations, and helps you maintain positive relationships with contractors. Upon receipt of the information, be sure to update it within your accounting file so you don’t have to search for these records at year-end.
Ask us about our 1099 preparation services.
You may also be interested in: A guide to Form W-8BEN for U.S. employers with international contractors
6. Review expenses and trim the fat
Take time to sit down and review your expenses for the year. Many businesses have daily, monthly, or yearly expenses that could be trimmed or eliminated entirely. There may be better uses for that money.
Pro tip: Take a look at recurring charges on your accounts, as one of the most common areas for savings is in reducing or eliminating underused subscription services. Redirect that money toward growth or savings.
You may also be interested in: How to cut expenses: Guide for small businesses
7. Set a business budget for the new year
Preparing for the new year wouldn’t be complete without setting a business budget. To accurately develop a budget for the year, you will want to take a look at your financial statements to examine your revenue, expenses, and current assets. From your cloud-based accounting system’s dashboard, you can pull monthly and yearly reports at the click of a button.
Tips for setting a business budget
The truth is that you need to spend money to make money, but your expenses will vary depending on the nature of your business.
When setting a budget, take inventory of what the business already has, additional staff that may need to be hired, and any large purchases that need to be made (such as new technology, furniture, or even real estate).
Pro tip: Regularly reassess budgets, especially during growth.
8. Set sales goals and projections
When pulling reports for budgeting, be sure to keep them on hand to set sales goals. Based on previous sales figures, goals, and growth, the company should have a foundation to set realistic, achievable sales goals.
Not sure how to set a small business sales goal? An outsourced accounting professional can provide you with the financial expertise needed to create budgets and review financial goals, without the financial burden of a full-time hire.
9. Update your technology
The end of the year is a prime time to explore opportunities for improvement. If your business is stuck in Excel, the new year might be a great time to make the transition into a digital, cloud-based back-office accounting workspace. Apps like QuickBooks Online and Xero save time by automating your overall accounting. They also give you real-time insight into your financials from anywhere.
10. Schedule a tax review with your CPA
If you haven’t already done so, schedule a time to speak with your CPA about a proactive tax strategy. A year-end tax planning meeting will include a tax projection so you know what’s coming in the spring.
Collaborate with your CPA to explore potential deductions, considering options such as equipment upgrades, energy credits, or charitable contributions to optimize your tax situation.
Pro tip: If you’re making large purchases to reduce your tax bill, be sure to consult with your CPA and understand the allowable deduction.
A successful new year starts with an end-of-year accounting checklist
Closing out the year with an organized, proactive plan keeps you in control of your finances. Use this business year-end checklist to stay ahead of taxes, free up cash flow, and prepare for growth.
If you need assistance with year-end small business accounting or preparing for the new year, send us a message.