Essential Year-End Bookkeeping Tasks for Small Business Owners
As the year comes to a close, small business owners know it’s time to tidy up their books. Year-end bookkeeping is essential for accurate financial reporting, smooth tax preparation, and a clear view of your business’s financial health. Here’s a checklist of key tasks to wrap up your year and prepare for a successful start to the new one.
1. Reconcile All Accounts
Start by reconciling all bank and credit card accounts. This process ensures that the transactions in your accounting software match your actual bank statements, helping to identify and correct any discrepancies. Reconciling your accounts gives you an accurate picture of cash flow and keeps financial reports in order.
2. Review Accounts Receivable and Accounts Payable
Check your accounts receivable to ensure all invoices have been sent and payments have been received. Follow up on any outstanding invoices and make an effort to close out as many as possible. For accounts payable, ensure that all vendor bills are entered and scheduled for payment to avoid late fees.
3. Verify Payroll and Employee Information
Verify that all payroll data is correct, including employee tax information, hours, and benefits. Review payroll taxes and make sure you’re up-to-date on all payments. Accurate payroll records are essential for issuing W-2s and 1099s and for preparing year-end tax returns.
4. Organize Business Expenses for Maximum Deductions
Take a close look at business expenses throughout the year to ensure you’re maximizing deductions. Categories to focus on include office supplies, travel, utilities, and business-related meals. Make sure to record and categorize any last-minute expenses before the year ends.
5. Review and Write Off Bad Debt
If any outstanding invoices are unlikely to be paid, now is the time to write them off as bad debt. Writing off bad debt lowers your income for the year, reducing your taxable income. Be sure to document the efforts you made to collect the debts in case of an audit.
6. Conduct an Inventory Check
If your business deals with inventory, perform a year-end count to check against your records. Adjust for any discrepancies between your physical count and what’s recorded. Year-end inventory values affect your cost of goods sold (COGS), which impacts your taxable income and financial statements.
7. Review Financial Statements
Generate and review your year-end financial statements, including the balance sheet, income statement, and cash flow statement. These reports provide a comprehensive view of your business’s financial health and help you identify trends and plan for the coming year.
8. Backup Financial Data
Ensure all financial data is backed up in a secure location, either on the cloud or an external hard drive. Regular backups protect you from data loss and give you peace of mind as you close out the year.
9. Prepare for Tax Season
Year-end bookkeeping is also about getting ready for tax season. Make sure you have accurate records for all income, expenses, payroll, and deductions. Review any changes to tax law and consult a tax professional if needed to ensure compliance and optimize your tax position.
10. Set Goals for the New Year
With your books in order, reflect on your financial performance and set goals for the coming year. Use your year-end financial insights to establish budgets, identify growth opportunities, and outline strategies for a successful year ahead.
Wrapping Up the Year with Confidence
Year-end bookkeeping may feel like a big task, but it’s a valuable opportunity to understand your business’s financial standing and prepare for the future. By completing these essential tasks, small business owners can approach tax season with confidence and start the new year on solid financial ground.
Need help with your year-end bookkeeping? Reach out to our firm and ensure your business is set up for success.
