The end of the year is a critical time to ensure that your accounting is fully in order. Assuming your small business follows the calendar year for its fiscal year, this is the moment when you take the time to verify and ensure that things are properly prepared. This is not only to help you start a new fiscal year effectively, but also to properly prepare and file your business tax returns (and, for an LLC or other pass-through entity, your personal tax returns as well).
Closing out the fiscal year properly will give your small business the clarity it needs to start 2017 with confidence. Here are five key steps you can take to effectively prepare for your accounting year-end today:
Step 1: Review all reports and requirements.
A great place to start is with your profit and loss statements, which will give you a clear picture of your overall financial status and direction. This can also give you a rough guide for considering whether additional investments in this tax year may make sense. For example, if you purchase new assets (property, furniture, equipment, etc.), then these can begin depreciating now and you can report them on your 2016 tax returns.
While you’re at it, you should also review all requirements and documents needed by your CPA to prepare your taxes, by examining the tax planning checklist and/or tax organizer that your accountant may have prepared for you.
Step 2: Cross-check vendors, bills, contracts and approvals.
Next come some key checks and balances. You can begin by walking through 1099s and other related vendor documentation to make sure that they are up-to-date and accurate. Also, double-check to ensure that this same information has been accurately and fully entered into your accounting system.
Also walk through things such as your outstanding loans, bill approvals, contracts, employee reimbursements and other expenses. You’re looking to ensure that (a) everything for the year has been entered, and (b) approvals and sign-offs are accurately communicated and present.
Step 3: Take an accurate inventory and validate taxable sales.
The end of the year is an excellent time to perform an inventory review, if your company sells products or carries tangible items in storage or holding. Retail, wholesale or other inventories should be accurately counted and matched to the accounting system as a key part of this process.
In addition, run a report to examine your taxable sales and validate that your business has paid all applicable sales taxes for the year.
Step 4: Review your payroll and benefits.
Walk through and make sure that your year-end payroll expenses match up with monthly payroll taxes. This will help you prepare for your year-end payroll tax returns and also give you the opportunity to look for benefits relating to your full range of W-2 considerations such as health insurance, life insurance, transportation benefits, educational or training reimbursements, and more.
Step 5: Try a balance and prep a budget.
Once these steps are completed and all accounts are reconciled, prepare your fiscal year-end trial balance to see where you stand and confirm your position, as well as the overall accuracy of your books.
In addition, use this opportunity to prepare your planning budget for 2017 (if you haven’t already). Make sure to consider increases in overhead costs (such as a rent increase or anticipated changes in employee mileage reimbursements), as well as capital investments, payments to shareholders and any other changes in your business.
These five steps give you a clear pathway of key points to follow as you prepare for a successful accounting year-end. However, there are many more details and options to consider, and the best way to review those is to discuss them with your accountant. Before you begin preparing for your year-end in earnest, consult with your small business CPA.
- Checklist for the End of Your Small Business’ Fiscal Year
- 10 Crucial Year-End Closing Procedures for Accounting