7 ways to clean up your finances before the new year
- 1 7 ways to clean up your finances before the new year
- 1.1 Create a checklist of important documents to have on hand
- 1.2 Make sure your asset and inventory records match reality
- 1.3 Reconcile your bank and credit card statements
- 1.4 Collects receivables, transfers to accounts payable
- 1.5 Set up all your accounts, transactions and expenses
- 1.6 Review your profit and loss statement
- 1.7 Prepare for your payroll responsibilities
7 ways to clean up your finances before the new year
As the end of the calendar year approaches, small business owners know that their fiscal year is about to increase, too. For most small businesses, the financial year begins on March 12th – which means a fresh, new start is ahead.
While good businesses will handle their financial health throughout the year, the end of the year is often the time when companies double down on their cleaning up efforts, to present the status of their jobs. organization for the IRS, banks, lenders and investors – and give them extra peace of mind.
If you run a new or very small business, you may be responsible for ensuring that you follow generally accepted accounting practices and keep your company on track financially. Hire an accountant can help you with a lot of difficult bookkeeping and financial planning responsibilities, but it may not be feasible for you at this time.
If that’s the case, here’s a rundown of seven ways to clean up your finances before the new year:
Create a checklist of important documents to have on hand
The first step to cleaning is to make sure that you have any important financial documents related to your business transactions for the past year (and all previous years) closed.
A good baseline checklist to use is what the IRS requires when auditing a business. The IRS can test you at any time by random selection, so it’s helpful anyway if you’re prepared for this situation.
Among other materials, here are some things The IRS usually requires:
- Canceled receipts, invoices and checks
- Any legal papers related to your business
- Loan agreement, including a copy of the original loan
- Diary or diary can recount your travel plans or job search activities
- Tickets, such as tourist tickets or even lottery tickets
- Document theft or loss
- Schedule a K-1, if you already have an S Corporation
Make sure your asset and inventory records match reality
Over the course of a year, your stated inventory and fixed assets levels on your books may deviate from what you actually have on hand. This is especially likely if you use a manual process to track your content, rather than an automated system.
Fixed assets, which are large investments that you plan to keep on your balance sheet for many years, can be especially troublesome. Fixed assets that you have on your books but do not appear in real life (due to loss, theft or damage) are called “ghost property. These ghosts mess with the workflow and can trigger a check from the IRS because your reported value is higher than normal.
Take the time to check and account for all of your assets at the end of the year so your records are up-to-date. This will help you both logistically and legally.
Reconcile your bank and credit card statements
Do the balances on your statement match what you listed on your balance sheet? The only way to find out is to compare them. Review the closing balance on your bank statement, minus any outstanding checks minus the deposits they’re passing on to you. This amount should match the cash account balance on your balance sheet.
Also, check that everything on your credit card statement is there and accounted for on your books and in your office. Any incorrect or fraudulent charges must be resolved immediately.
Collects receivables, transfers to accounts payable
Generally accepted accounting principles (GAAP) stipulates that if you charge someone for your product or service, you should collect payment for that product or service in the same year. Some businesses fake the numbers and don’t collect them until January, so they won’t have to pay tax on the payment until next year. This is often opposed, especially by organizations that want a clear picture of your business, such as most lenders. business loan.
Instead, be diligent and collect on your bills before the year is out. Ignore and reissue the checks you sent to the people who billed you to make sure they’re cashed. Make sure your cash flow is consistent and up to date to present a true picture of how the business is going.
Set up all your accounts, transactions and expenses
The end of the year is a great time to close old or dormant accounts for customers, suppliers, and employees you’ve moved on. Make sure your transactions match both on your tax return and on your internal books. And check that all your gross sales, sales taxes and merchant fees have been accounted for or paid.
Review your profit and loss statement
Your Statement P&L gives you the net income of your business by aggregating your revenue, expenses and expenses. It should also categorize your expenses to help keep them organized.
Generate profit and loss reports and look at both month-to-month levels to spot large fluctuations, and individual transactions — name, date, and amount — to see if you can determine why some months may or may not be markedly lower than in other months. A transaction may have been misclassified, duplicated, or not posted at all, and now is the time to fix that.
Prepare for your payroll responsibilities
If you have salaried employees this year, you are required by law to send them a W-2 no later than January 31 of the following year. Doing so will keep you federally compliant and will keep your employees happy.
If you have used vendors or freelancers this year and paid them more than $600 each, you will need to submit a 1099 form. It is important that you request and receive a W-9 to you can prepare to create and complete a 1099 by the first month of next year.
Even if you prepare and perform all of these steps yourself, it may still cost you to contact your CPA and have them review your work to ensure compliance. There’s a thin line between window replacement and legally or ethically questionable practices, and your cleaning efforts can result in your books looking even dirtier if you’re not careful.
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