End of Year Financial Checklist by Libby Ladu
Around Thanksgiving time or early December – before the hectic holiday season completely takes over – there are a few things you can do to make sure your financials are ready for your tax preparer (CPA).
It’s also a good time to assess your progress for the year that’s ending and plan forward for the coming year. And, before you hunker down with your numbers, remember to thank your customers or clients for their business by sending them a note of appreciation.
Here’s a handy check list for getting your financial ducks in order:
Payroll Documents | You (or your payroll processor) must issue W-2s and 1099s and distribute them to your employees and contractors before January 30. So, preferably before Dec. 31: |
| Make sure Form 941s for Q1-Q3 have been filed properly. Check accuracy of Q4. Make any necessary changes before Dec. 31 |
| Save the W-3 and Form 1096 (prepared by your payroll processor and/or you at the time W-2s and 1099s are issued for your tax preparer) |
Accounts Receivable | Collect any outstanding receivables. Most clients will go along with you, because they like to pay outstanding invoices by the end of the year. It increases their deductible expenses, lowers income and reduces potential tax liability |
Vendor Payments | You should have up-to-date W-9s for all your vendors and contractors who are NOT corporations |
| You (or your tax preparer) should issue all necessary 1099MISC forms before Jan. 30 to qualifying vendors |
| You should have copies of receipts for all major expenditures as back-up. |
Bank Statements, Credit Card Statements and Loan Outstanding Balances | Make sure all your bank statements, credit card accounts and any outstanding debt balances have been reconciled. Have the year-end statements ready for your tax preparer |
| If you have excess cash at the end of the year, it’s a good time to pay down debt, especially with revolving Lines of Credit. |
| If you have excess cash and profit at the end of the year, it’s a good time to pay bonuses to loyal or exceptionally performing staff |
Inventory | You need to do a physical inventory for year end and make decisions about the value of any remaining inventory. Your accountant will require this information in order to calculate Cost of Goods Sold properly |
Insurance, Data Security | Again, the year end is a good time to reflect on whether you are still properly insured and if your data storage needs are being well met |
Marketing, Social Media | Have your marketing dollars been well spent? Collect and review relevant metrics: website traffic, online sales, customer list growth, etc. |
And here’s a guide for assessing the financial health of your business:
Reviewing Your Financials
It’s always a good idea to review your financial statements in context – for example, as compared to the previous year or to a budget, if you had one. Use the review to formulate your goals for the New Year: What are you happy with? What do you want to do better? What do you want to quit doing?
Profit & Loss | This statement tells you if you made money (a profit) this year. Hopefully you did! If not, the P&L can help point you to what you need to do to improve |
| Use CASH P&Ls (not Accrual) to review for tax purposes; use Accrual if you want to see billings this year versus last year |
| Compare Sales/Revenue this year to last (or budget); compare expenses – line by line – this year to last. Do you understand the variances? |
| Make sure you’ve included only allowable expenses for auto, telephone and home office |
Did you pay any business expenses on a personal credit card (or vice-versa)? Now’s the time to collect documentation/receipts so they can be properly recorded | |
| Remember, your accountant will add depreciation expense using tax tables – this will decrease your taxable profit |
| Take note of any entries in the Miscellaneous category or in Ask My Accountant and either allocate them yourself or bring them to your CPA’s attention |
| Check to see if you’ve allocated income meaningfully (by product, by customer, by region) – whatever categories you want to track from year to year. If not, now’s the time to re-format your P&L, as the new year begins |
Balance Sheet | Your Balance Sheet keeps track of cash balances, inventory, and any debt you have acquired |
| This year, your PPP loan should appear on your Balance Sheet, unless it has been forgiven |
| Are there negative balances in Asset accounts? This can happen if you are accounting for loan or credit card payments incorrectly |
| Make sure TOTAL ASSETS = TOTAL LIABILITIES + EQUITY – if not, you’ve got a bookkeeping issue |
Cash Flow Statement | This tells you where your cash came from (mainly operating profit) and also where it went during the year |
| If you borrowed money during the year or paid off debt, you will see it here. Draws or distributions (other than salary) paid to owners also show on the Cash Flow Statement |