As 2020 ends, small businesses and accountants must close their books and move onto the next year.
It’s critical to have a process in place to ensure that companies can file taxes on time, measure annual performance, and enter the new year with cash flow on hand.
Mistakes can cost you time and money, and – given the unprecedented events of 2020 – it can be challenging to manage expectations and tasks.
This year, FundThrough has created a year-end checklist to help business owners, accountants, and bookmakers ensure the final weeks move smoothly.
Here is your year-end accounting best practices checklist.
First up on the year-end checklist, take the time to protect your data.
All year, you’ve been tracking your expenses and keeping receipts for when it’s time to complete tax documents.
If you’re not using software to track your expenses, consider QuickBooks Online starting in January.
For more information on what receipts you might need, visit here.
Not only should you keep all of your documents in order, but now is also an important time to conduct a full backup of your critical information technology.
Take the time to back up your computer, store data on external drives, and duplicate your efforts on a cloud-based system. Also, backup your contact information (phone numbers and email addresses) from your phone and computer to additional devices. You might also find comfort by downloading copies of reports from any cloud system to an external drive or device.
Next on the year-end checklist, it’s time to update critical information.
Your business might have changed quite a bit this year. The same goes for your vendors and suppliers.
Now is a good time to verify the contact information of your vendors.
This includes addresses, contact names, official business titles, and email addresses. This information will improve the other part of the process, sending the relevant payment information to tax agencies.
Both the U.S. Department of Treasury (IRS) and the Canada Revenue Agency require small businesses to report payments made to certain suppliers and vendors over a certain threshold.
The IRS requires the filing of a Form-1099 to vendors and contractors who received at least $600 in rents, prizes, services, awards, or other payments during a tax year. The deadline for filing is typically January 31.
Meanwhile, the CRA requires that Canadian businesses file the T4A form by the last day of February. For more information on filing a T4A, visit here.
Before starting your annual accounting practices, ensure that your cash balances are the same as your year-end statements. If they do not match, look at outstanding checks or digital payments to determine if they have not cleared a bank. You can also contact any payees to ensure that payment was received.
Click here for more on conducting bank reconciliations.
Before the end of the year, it’s critical to know what outstanding accounts receivable require payment. Next on the year-end checklist, review your accounts for any open bills or unpaid invoices. Then, assess whether they have been accounted for correctly in your books.
An audit of your accounts receivable is a multi-step process that will require additional evaluations of shipping logs, writing off bad debts, exploring your receiving log, and more. For a complete step-by-step process of AR auditing, visit here.
This year’s economic crisis and tightening on credit have made it difficult for businesses to get customer payment quickly. In some cases, large customers extended payment terms from already generous existing agreements. In other cases, some customers have failed to pay on time and are seeking additional time that might extend into 2021.
According to a QuickBooks Cash Flow Survey in 2019 alone, the average U.S. business averaged outstanding receivables totaling $78,000. That figure could increase in 2020 due to longer payment terms, greater economic uncertainty, and other challenges.
But invoice funding can eliminate that wait and provide small businesses with an immediate boost to cash flow. Companies can use their outstanding invoices as collateral to get fast, affordable access to cash flow instead of relying on traditional funding sources like banks.
FundThrough reduces the wait time for outstanding receivables payments by 97%. Without FundThrough, the company’s average customer would wait 40 days for payment from their customers. However, invoice funding allows companies to reduce that wait time to 24 hours. Get your invoices paid, and put a plus sign on your year-end checklist.
One easily overlooked part of the accounting process is the confirmation of large purchases on the annual balance sheet. You’ll also want to ensure that assets from the previous year remain in service.
For a review of how GAAP standards, capitalization, and amortization rules relate to Small Businesses, visit the GrowthForce blog.
If your business requires inventory management, make it a priority to ensure that you complete a year-end assessment. Conduct a physical count of current inventory and ensure proper calculations on the balance sheet. Given that companies are taxes on their profits, current inventory levels will lower profits and reduce taxable income. For more on how to value inventory and the impact on your taxes, visit here.
When assessing your business statements, it’s critical to assess current loan payments. Ensure that year-end lender statements match your accounts’ loan amounts and adjust principal and interest payments accordingly. This is an important element of your accounting year-end checklist. For more information on how to assess a balance sheet, go here.
Roughly 32% of small businesses make a payroll mistake, while the majority states that they have underpaid at least one employee, according to SurePayroll.
It’s important to ensure that you have corrected any payroll changes, including taxable fringe benefits, educational reimbursements, insurance, and transportation subsidies, before the end of the year. Ensure that payroll is properly accounted into your system by comparing it to year-end payroll reports. To learn common payroll mistakes made by small businesses, visit here.
Once you have completed your financials for 2020, it’s important to think about your accounting for next year. Prepare a business budget immediately to help you make better financial decisions, identify opportunities to reduce costs, increase revenue, identify potential growth avenues, and stay on track to meet your goals. For a quick breakdown on how to get started on a budget, visit here.
The final few weeks of the year are critical to ensure your future success.
But be sure to take some time – especially as 2020 comes to a close – to celebrate your company’s success. Having a firm grasp of your company’s finances and a quick boost of working capital can ensure that you hit the ground running in January with confidence.
To discover how FundThrough can help fund your business and help you accomplish your goals on the year-end checklist, contact us in our chat below.
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