It’s never too early to start getting ready for the year-end financial close for your small business. In fact, you can work on it throughout the year to avoid a last-minute rush and the accompanying panic that often accompanies it. While thinking about the end of the year can take a back seat to your day-to-day responsibilities, advance planning can help the close be a smooth and successful process.
What does year-end close mean?
First, let’s define what the year-end closing is. This accounting activity, also known as “closing the books,” means finalising business reports to ensure that your finances are in order and all information is accurate and accounted for. It can inform business decisions, help prepare you for tax season, and create an audit trail.
From getting your reports in order to taking stock of your tax deductions with accounting software, here are some ways you can prepare for this annual task so you can spend the holidays celebrating and not stressing.
Determine your timeline
Understand the specific deadlines you’ll need to meet throughout the year, the fiscal close, and the tasks involved. Create a schedule and ensure all stakeholders are aware of their responsibilities and what needs to be done, and by when. An established workflow creates accountability and can help save time in the long run.
Keep financial records organised
Financial records are essential for assessing how your business is performing and provide a foundation for forecasting and establishing next year’s goals. You’ll also need accurate records in case of an audit or if you plan to sell the company. Some of the documents you’ll want to have organised are:
- Balance sheet – A financial snapshot of your company as of a specific date.
- Income statement – Also called the Profit & Loss statement, this is a calculation of profits by comparing revenue to expenses.
- Cash flow statement – Your cash receipts and outflows for a specific time period.
One of the easiest ways to keep tabs on your business’s financial performance throughout the year is with accounting software. It will organise your data in a simple-to-use format so that you can make more informed decisions and access real-time info anytime. When you need to generate those key year-end reports, all it takes is a few clicks.
Save receipts and other documents
The IRS requires businesses to keep certain documents for tax purposes, such as:
- Gross receipts – Cash register tapes, invoices, and deposit information
- Purchase records of items bought and sold – Credit card receipts, invoices, canceled checks, or other proof of payment
- Expenses for costs incurred to run business – Invoices, canceled checks, account statements, invoices, or other proofs of payment
- Proof of travel, transportation, gift, or entertainment expenses
- Business asset records
- Employment taxes
How do you currently store your receipts and expense documents? If it’s in a shoe box or file cabinet, you’re not alone. Lots of business owners do. But as you probably already know, that’s not the best way to keep those important records organised, especially at tax time and the end of the fiscal year when time is of the essence.
Again, this is where accounting software can make your life easier. Some of the more robust software options feature a receipt and expense tracker that gives you immediate insights into where your money is going and allows you to snap photos of your receipts and upload them to your software in seconds. Digitally organise your receipts as you receive them instead of digging through a paperwork pile when you need to close out or do your taxes.
Accounting software can also:
- Sort receipts into categories, including those all-important deductible expenses
- Create profit & loss and cash flow reports
- Sync with bank accounts, credit cards, and payment apps
Consider your tax records
Get a jump on tax season and your year-end close simultaneously by keeping track of your deductions. Accounting software with a receipt and expense tracker feature can facilitate this to ensure you don’t miss any qualified deductions such as:
- Business meals
- Startup expenses
- Business interest expenses
Since receipts are uploaded and organised as they are received, your records will be in better order come tax time.
Reconcile your transactions monthly
Reconcile your books at least once a month. Compare your financial statements and records to your bank accounts and credit cards to help you:
- Understand your true cash flow
- Spot errors and fix them promptly
- Identify potential fraud and take appropriate action
- Generate accurate tax reports
Yes, bank reconciliation can be tedious, but employing accounting software can facilitate the process. If your program has an invoice software feature, you can get paid through the platform, and the transactions will be recorded and matched for you. Staying organised and maintaining meticulous monthly records may help you avoid the end-of-year scramble.
Close books monthly or quarterly
While you must close your books annually, many businesses also close them at the end of each month or every quarter. From generating financial documents and reconciling accounts to submitting sales tax reports, monthly and quarterly closings provide accurate financial information at frequent intervals so that you can identify issues and opportunities, make adjustments as needed, and plan strategically.
By automating a range of accounting and bookkeeping tasks, accounting software can make closing the books any time of year less of a chore. Enjoy peace of mind, save time, and alleviate some of the task’s most common pain points so your business will be best prepared for the exciting year ahead.