Year-End Bookkeeping Tips for Small Business Owners: A Comprehensive Guide
As 2023 draws to a close, you probably find yourself facing a daunting task: year-end bookkeeping. We get it: you want to run your business, not immerse yourself in Quickbooks. But think about this: your year-end bookkeeping is a snapshot of how your business is doing. Were your sales up or down this year? Should you hire? Introduce a new product or service? Make a change? Knowing your numbers will help set your business up for success in 2024. Here are a few tips for you to help you get organized.
1. Reconcile Bank and Credit Card Statements
Do your records match your bank and credit card statements? Make sure all your transactions have been accounted for and that there are no unexplained discrepancies. This step helps prevent fraudulent activity and ensures your financial statements accurately represent your business’s financial health.
2. Update Depreciation and Amortization Schedules
If your business owns assets that depreciate or amortize over time (e.g., equipment, vehicles, or intangible assets), you need to update these schedules. This ensures that the value of these assets on your balance sheet reflects their current worth accurately. You’ll want this information when you’re working on your year-end tax planning.
3. Review Outstanding Invoices and Expenses
Review your outstanding invoices and expenses to ensure that everything is accounted for. Contact clients who owe you money to collect payments and pay any outstanding bills.
This step will help improve your cash flow, and any uncollectible debts can be written off to reduce your taxable income. It’s also an opportunity to check for duplicate or erroneous charges that may affect your profitability.
4. Count Your Inventory
If your business carries inventory, make sure you know exactly what you have left at year-end. This ensures that your balance sheet reflects the correct value of your inventory. Any discrepancies should be addressed promptly to maintain accurate financial statements.
5. Maximize Deductions and Tax Benefits
Year-end bookkeeping is a great time to consider deductions and tax benefits. Consult with your tax professional to explore potential deductions. Also consider contributing to retirement plans or making some year-end purchases, which can reduce your taxable income and help you save for the future.
6. Review your vendor list for 1099s
Which vendors did you receive services from this year? If you spent $600 or more, you’ll need to issue a 1099 form to that business. If you haven’t already done so, ask the business to complete and send you a W-9 form so you’ll have all the information you need for the 1099.
7. Review your employee data
Make sure ALL of your employee data is correct for year end W-2s. This includes all employees for 2023 whether they are still active or inactive. Confirm that their names, addresses and Social Security Numbers are good and ready for the W-2s
8. Prepare Financial Statements
Compile your financial statements, including the income statement, balance sheet, and cash flow statement. They help you make informed decisions and secure financing.
9. Assess Your Business’s Financial Health
With your financial statements in hand, you’ll have a snapshot of your business’s financial health. This analysis can help you identify areas for improvement and set financial goals for the next year. For instance, if your current ratio is low, you might need to focus on improving your liquidity.
10. Backup and Secure Your Financial Data
Protecting your financial data is important! Ensure that all your financial records are backed up and securely stored. In the event of unforeseen circumstances, such as data loss or cyberattacks, having a reliable backup can save your business from significant disruptions.
Well-organized finances are the foundation of a thriving small business. It’s your chance to review and plan for next year. If any of these tasks seem overwhelming or just too time consuming, Sommer and Sommer is here to help. We’ll support you or even take over these year-end tasks so that you have the information to make solid decisions for 2023.