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Running a small business can be difficult and overwhelming at times. At the end of the year, it can and will gets even more complicated. Now is the time to prepare your financial reports and data for the next year and the upcoming tax season. Use this simple small business year-end checklist to make sure your business is ready. Let’s get started!

1. COUNT YOUR INVENTORY and/or FIXED ASSETS.

In a product-centric business, inventory is incredibly important. Now is the time to count your inventory and make sure you are able to provide your tax preparer with the following information.

  • The inventory balance as of 1/1/2020 and 12/31/2020
  • The cost of all purchased inventory during the year
  • The amount of sold inventory during the year

Counting inventory early will also give you ample time to investigate if there are any discrepancies in your records.

Equally important is to review and account for your fixed assets (i.e. office furniture and equipment, vehicle(s), machinery and equipment, etc.). Complete this task in a similar fashion as completed for your inventory.

2. RUN STANDARD FINANCIAL REPORTS.

The end of the year is the best time to get a full financial picture of your business’ health. Pay special attention to these reports, whether you use accounting software or manual spreadsheets.

  • Profit and loss report – This report will tell you how much money you’ve made this year, what your financial outlook is, and whether you have money in the budget to invest in more assets.
  • Balance sheet – This sheet shows what the business owns, what the business owes, and what the business is worth.
  • Cash flow statement – This statement will show how your money was spent throughout the year, whether through operating, investing, or financial activities.

These financial reports will prepare you for filing taxes, creating business-oriented goals, budgeting for future expenses, and more. If you’re unsure of how to create these reports, or would like assistance on evaluating and analyzing them consider outsourcing your accounting needs.

3. ORGANIZE RECEIPTS FOR TAX-TIME.

Depending on the size of your business, you may not track receipts on a specialized software system. Collect and organize your paper receipts before the end of the year. This will lessen the burden come tax season for both you and your tax preparer.

4. AUDIT YOUR VENDOR and CUSTOMER INFORMATION.

Is all of your vendor and customer information correct? Comb through your vendor and customer lists and double-check that you have all of the correct contact information, like emails and phone numbers. Plus, delete inactive vendors and customer from your files. If you find an inactive vendor with the potential to become active again, create a game-plan to make that happen before the end of the year.

5. MAKE NECESSARY CORRECTIONS TO PAYROLL.

It’s estimated that 40% of small businesses are fined about $845 annually for IRS penalties relating to payroll. Account for all taxable fringe benefits before the end of the year. These could include:

  • Education reimbursement
  • Health & Life insurance
  • 3rd party sick pay
  • Company cars

Don’t forget to budget for an end-of-year bonus or incentive, and decide whether that bonus will appear in the 2020 or 2021 payroll. It will make a difference in your profit reports and tax preparation.

Also, remember for every vendor for whom you’ve paid $600 or more for services, you’re required by law to issue and complete a 1099-MISC form. Therefore, don’t forget to collect W-9’s from vendors or confirm you have them in your files.

6. RECONCILE YOUR ACCOUNTS RECEIVABLE.

Start collecting any unpaid invoices or outstanding payments from clients now. Make it your goal to have all accounts receivable reconciled before the start of the new year. This will improve your financial reports and prevent any cash flow crises.

7. BACK UP VITAL BUSINESS DATA.

Do you follow the 2:1 rule? Experts recommend keeping vital data in at least two, separate digital locations, and another physical copy for your records. You could use external hard drives or even cloud-based software to back up your business data.

Financial reports are not the only vital business data – where do you store contact data? Whether they are customers or vendors, you need to make sure you have their contact information in more than one place.

8. ADOPT A FILE-NAMING SYSTEM.

If you don’t already have a naming system in place, there’s no time like the present. As your business grows, so will the number of files. You need to ensure that these files will be simple to locate no matter what year or client they relate to. Staying organized throughout the upcoming year is very important and will save you time, especially when you need it the most.

Stanford University has actually put together a guide for file naming best practices. Read it here.

A good format for date designations is YYYYMMDD or YYMMDD. This format makes sure all of your files stay in chronological order, even over the span of many years

Special characters such as  ~ ! @ # $ % ^ & * ( ) ` ; < > ? , [ ] { } ‘ ” and | should be avoided.

9. EXAMINE 2020 GOALS and CREATE 2021 GOALS.

Now that you’ve evaluated the financial aspect of your business, it’s the perfect time to determine whether you’ve met your 2020 goals. You can then use your success or failure to create 2021 goals.

Consider sharing your successes with your employees. If you’ve met particular goals, your employees will enjoy hearing their part in the business’ accomplishments.

Although 2020 has been a year I’m sure we all would like to see in the rear-view mirror, may the end of it bring you health and peace. With the belief and motivation that 2021 will be a better and more successful year, please reach out to us–O’Connor CPA Firm, LLC–if you need some of our comprehensive menu of services to meet every accounting, tax, and business planning need.

Post Author: Lorrie Toillion, CFP®

Accounting Specialist, Tax Assistant, and Client On-Boarding Associate.