An End-of-Year Financial Checklist for Small-Business Owners
With the end of the year in sight, now is a good time for small-business owners to look ahead and get their finances in top shape — setting themselves and their businesses up for success.
To start the new year the right way, here is a financial checklist of action items to complete before year’s end.
Review Your Finances
Business owners usually look at three reports when reviewing finances, as they provide valuable insights regarding their financial health:
- Profit and Loss Report: This report summarizes your revenue, costs and expenses during a certain quarter or fiscal year.
- Balance Sheet: This provides a financial snapshot of your business at a specific point in time, such as the month of November, listing assets, liabilities and equity.
- Cash Flow Statement: Here, you can track where your money went during a particular period of time, including revenue and expenses.
When looking over these statements, compare the numbers to goals or predictions you set at the beginning of the year. Did you do as well as you had planned? If so, identify what you did that contributed most to your success and make sure to invest more time and money into those business ventures. If not, determine what happened and make plans to change course.
Create a Budget for the New Year
Once you’ve reviewed your financial statements, dig deeper and evaluate your expenses to eliminate any unnecessary items from your budget. Perhaps you have subscriptions or services that you’re not using and can cancel before they renew. Or, maybe the return on investment for a new marketing technique wasn’t high enough to justify continuing its use.
Take the time to get quotes on services to ensure you’re not paying too much. Areas to examine include your insurance, professional services, shipping carriers and utilities, such as telephone and internet providers.
Collect Outstanding Accounts Receivable
If any of your clients still owe you money for work done the current year, it’s time to follow up and secure payment. Collecting your money before the end of the year will help you enter the new year with a clean slate. If you provide business services, you can encourage the outstanding vendors to pay you so they can claim the expense on their current taxes. Letting too much revenue sit in accounts receivable for a long time can hurt your business’s cash flow and put your livelihood at risk.
While you may specify terms on your invoice, there’s not a specific legal requirement as to how long accounts receivable can be outstanding. It comes down to how long you’re willing to wait for payment. It’s also possible to hire an outside firm to handle collection for you.
Prepare for Tax Season
Finally, start organizing your tax information so you’re ready to file. When you review your expenses for the year, make sure you have the necessary documentation for items that can be deducted, and ensure that you have W9s on file for independent contractors. If your revenue was high and you have adequate cash flow, consider end-of-year purchases that can be written off, such as buying new equipment or replenishing supplies.
This is also a good time to evaluate your tax strategies and business structure. An accountant can provide advice on how your business should be structured so you get the maximum tax advantage. If it’s time to change from a sole proprietor to a corporation, for example, it can be a good idea to have the new identity take effect on January 1, so your tax filing for the new year is seamless.
Welcoming the New Year
When you take the time to get your finances in order, you can head into the new year feeling prepared and confident. This preparation could even lead to business opportunities further down the line. Set goals and take action now to see what the future has in store for you and your small business later.