Managing your business finances does not have to be eat-your-spinach drudgery. The key, of course, is to create a realistic plan with a budget, record your transactions correctly, review your results regularly and always keep good records. Your comfort level with the three basic financial reports that evaluate your fiscal health is also essential: the balance sheet, income statement and cash flow statement.
When is it time to do what? The following checklist lays out a recommended timeline to take care of the accounting functions that will keep you attuned to the state of your business and streamline your tax preparation. Read through for in-depth coverage of your required tasks, or skip to the end to see a handy infographic to use as a visual checklist.
Daily Accounting Tasks
1. Check Cash Position
Since cash is the fuel for your business, you never want to be running near empty. Start your day by checking how much cash you have on hand. Knowing how much you expect to receive and how much you expect to pay during the upcoming week/month is important, too—but it is not gas in your tank.
Weekly Accounting Tasks
2. Record Transactions
Record each transaction (billing customers, receiving cash from customers, paying vendors, etc.) in the proper account daily or weekly, depending on volume. Although recording transactions manually or in Excel sheets is acceptable, it is probably easier to use accounting software like QuickBooks. The benefits and control far outweigh the cost.
3. Document and File Receipts
Keep copies of all invoices sent, all cash receipts (cash, check and credit card deposits) and all cash payments (cash, check, credit card statements, etc.).
Start a vendors file, sorted alphabetically, (Staples under “S”, Costco under “C,”etc.) for easy access. Create a payroll file sorted by payroll date and a bank statement file sorted by month. A common habit is to toss all paper receipts into a box and try to decipher them at tax time, but unless you have a small volume of transactions, it’s better to have separate files for assorted receipts kept organized as they come in. Many accounting software systems let you scan paper receipts and avoid physical files altogether.
4. Review Unpaid Bills From Vendors
Every business should have an “unpaid vendors” folder. Keep a record of each of your vendors that includes billing dates, amounts due and payment due date. If vendors offer discounts for early payment, you may want to take advantage of that if you have the cash available.
5. Pay Vendors, Sign Checks
Track your accounts payable and have funds earmarked to pay your suppliers on time to avoid any late fees and maintain favorable relationships with them. If you are able to extend payment dates to net 60 or net 90, all the better. Whether you make payments online or drop a check in the mail, keep copies of invoices sent and received.
6. Prepare and Send Invoices
Be sure to include payment terms. Most invoices are due within 30 days, noted as “Net 30” at the bottom of your invoice. Without a due date, you will have more trouble forecasting revenue for the month. To make sure you get paid on time, always use an invoice template the contains the right details such as payment terms, itemized charges, and your payment address.
For a complete guide to creating invoices, managing vendors and ensuring you get paid on time, check out our Ins and Outs of Invoices.
7. Review Projected Cash Flow
Managing your cash flow is critical, especially in the first year of your business. Forecasting how much cash you will need in the coming weeks/months will help you reserve enough money to pay bills, including your employees and suppliers. Plus, you can make more informed business decisions about how to spend it.
All you need is a simple statement showing your current cash position, expected cash receipts during the next week/month and expected cash payments during the next week/month. To download a free customizable cash flow statement template, click here.
Monthly Accounting Tasks
8. Balance Your Business Checkbook
Just as you reconcile your personal checking account, you need to know that your cash business transaction entries are accurate each month and that you are working with the correct cash position. Reconciling your cash makes it easier to discover and correct any errors or omissions—either by you or by the bank—in time to correct them.
9. Review Past-Due (“Aged”) Receivables
Be sure to include an “aging” column to separate “open invoices” with the number of days a bill is past due. This gives you a quick view of outstanding customer payments. The beginning of the month is a good time to send out overdue reminder statements to customers, clients and anyone else who owes you money.
At the end of your fiscal year, you will be looking at this account again to determine what receivables you will need to send to collections or write off for a deduction.
10. Analyze Inventory Status
If you have inventory, set aside time to reorder products that sell quickly and identify others that are moving slowly and may have to be marked down or, ultimately, written off. By checking regularly (and comparing to prior months’ numbers), it’s easier to make adjustments so you are neither short nor overloaded.
11. Process or Review Payroll and Approve Tax Payments
While you have an established schedule to pay your employees (usually semi-monthly), you need to meet payroll tax requirements based on federal, state and local laws at different times, so be sure to withhold, report and deposit the applicable income tax, social security, Medicare and disability taxes to the appropriate agencies on the required dates.
Review the payroll summary before payments are disbursed to avoid having to make corrections during the next payroll period. A payroll service provider can do all this to save you time and ensure accuracy at a reasonable cost. You can also use our free paycheck calculator to figure out what you need to withhold from each paycheck.
12. Review Actual Profit and Loss vs. Budget and vs. Prior Years
Your profit and loss statement (also known as an income statement), both for the current month and year to date, tells you how much you earned and how much you spent. Measure it against your budget every month (or quarter). Comparing your actual numbers to your planned numbers highlights where you may be spending too much or not enough, so that you can make changes.
If you have not prepared a budget, compare your current year-to-date P&L with the same prior-period year-to-date P&L to identify variances and make adjustments.
13. Review Month-End Balance Sheet vs. Prior Period
By comparing your balance sheet at one date—June 30, 2015, for example—to a balance sheet from an earlier date (December 31, 2014), you get a picture of how you are managing assets and liabilities. The key is to look for what is significantly up and/or down and understand why. For example, if your accounts receivable are up, is it due to increased recent sales or because of slower payments from customers?
Click here for a free customizable balance sheet template.
Quarterly Accounting Tasks
14. Prepare/Review Revised Annual P&L Estimate
It’s time to evaluate how much money you are actually making, whether your net assets are going up or down, the difference between revenues and expenses, what caused those changes, how you are spending profits, as well as identifying trouble spots, and making adjustments to improve sales and margins.
15. Review Quarterly Payroll Reports and Make Payments
You have been reviewing your semi-monthly payroll reports. However, the IRS and most states require quarterly payroll reports and any remaining quarterly payments. Again, it’s best if your payroll service provider completes these reports and files them. Your job is to review to make sure they appear reasonable.
16. Review Sales Tax and Make Quarterly Payments
If your company operates in a state that requires sales tax, make sure you comply to avoid serious penalties. The U.S. Small Business Administration (SBA) can help you determine your state tax obligations.
17. Compute Estimated Income Tax and Make Payment
The IRS and states that have income taxes require you to pay estimated income taxes. Review your year-to-date P&L to see if you owe any estimated taxes for that quarter. Your tax accountant can assist if necessary.
Annual Accounting Tasks
18. Review Past-Due Receivables
Now it’s time to check significant past due receivables and decide whether you think customers will eventually pay, whether to send past due bills to a collection agency or whether to write them off for a deduction.
19. Review Your Inventory
Review your current inventory to determine the value of items not sold. Any write-down of inventory translates to a deduction on your year-end taxes. If you do not write down unsellable inventory, you are overstating your inventory balance and paying additional taxes that you don’t owe.
20. Fill Out IRS Forms W-2 and 1099-MISC
The IRS has a February 1 deadline that requires you to report the annual earnings of your full-time employees (W-2s) and independent contractors (1099s). This deadline includes mailing copies of the tax forms to the people who worked for you. You must also file with the IRS no later than February 28. Note: A 1099 form is not required for any contractors who earned less than $600. Consider saving time and avoiding errors with an e-filing service.
21. Review and Approve Full-Year Financial Reports and Tax Returns
At tax time, carefully review your company’s full-year financial reports before giving them to your accountant. Before you sign your return, be sure to review it for accuracy based on your full-year financial reports. If the IRS audits your company and finds any underpayment of taxes, it will come to you, not your accountant, for any additional taxes, penalty and interest.
Accounting software like QuickBooks can help you generate financial reports and manage taxes, but for more guidance, see our guide to financial reporting. To keep a handy reference of this checklist, save our infographic below.