Keeping your financial records in order is hugely important to the success of your business. Not only does it keep you up-to-date on your profits and losses, but legally speaking, it’s necessary to have your records straight. It makes the close of your fiscal year easy to execute by ensuring that all of your required statements are in the right place. This is especially important for dealing with the IRS.
Understanding just what exactly goes into a fiscal year close can be confusing, however, especially for new business owners. Even if you have an accountant on staff or retainer, it’s still important to keep track of your finances yourself. It just makes good business sense for you, as the owner, to understand what exactly is happening with your money.
Let’s examine the steps you should take when closing out your small business’ books for the end of the fiscal year.
Steps to Take Before the Last Day of the Fiscal Year
1. Review your profit and loss statements
Your business’ profit and loss statements will help you get a snapshot of its financial performance. What does your revenue look like now that the year is almost through? Do you anticipate any other large expenses to hit your books? If not, evaluate how much money you have available, and see if it might be wise to make a larger purchase before the end of the year so that the item can depreciate.
2. Verify Your Vendor and Lender Files
It’s important to review the paperwork—including 1099s—associated with any of your vendors, as well as information relating to any current outstanding loans. Make sure all of your vendor 1099 forms are up-to-date and accurate. You also want to make sure the 1099 information has been inputted correctly into your accounting system so that it’ll populate the forms when printed.
3. Take Inventory
If you sell products, conduct an inventory assessment and compare the results to your last inventory report. Make any necessary adjustments so that you have an accurate account of how much capital you have wrapped up in your current inventory.
Even if you don’t sell products, it’s not a bad idea to take an inventory of elements in your office, such as equipment, computers, office supplies, etc. Make a list of any broken equipment or equipment in need of repair. If you lease any electronics, such as copiers, pull out the contract associated with it and make sure the terms are still appropriate for your situation.
4. Look for Benefits to Report on Your Outgoing W-2
As a business that issues W-2s, these benefits relate to the organization as a whole and can reflect things such as health and life insurance, transportation subsidies, educational reimbursement programs and more.
5. Create a Budget for the Following Year
It’s never too early to plan. By reviewing your statements from the current year, you’ll start to see a pattern in the things you need to budget and plan for in the next year. By taking stock of your expenditures from the current year, you’ll have a better understanding of where to focus your efforts moving forward.
Steps to Take After the First Day of the New Fiscal Year
1. Print Out Your End-of-Year Statements
You should keep them as electronic files, of course, but it still might be helpful to print out your profit and loss statement and balance sheet at a minimum. Accounting software like QuickBooks can help generate these financial reports, or you can reach out to an accountant to do it for you.
If you have a sales staff, you might want to print out sales per salesperson. If you’re curious about your clientele, you might also want to take a look at how much each client generated in revenue over the past year. As with most metrics, your end-of-the-year statements are as useful as you want them to be. Choose the data that will tell you what you need to know.
2. Make Depreciation Entries
Depending on how savvy you are with your finances, you may need some help from your accountant for this step. The benefit of listing depreciation is that it decreases the amount of taxable income you must report on your taxes. There are four key characteristics of assets that are considered depreciable by the IRS:
- The asset must be wholly owned by the company.
- The asset is used to produce income.
- The asset must have a determinable lifespan.
- The asset should last more than one year.
There is also a list of assets excluded by the IRS that you need to cross-reference.
3. Reconcile All of Your Accounts
Go through all of your credit and bank accounts for the business, and reconcile all charges and payments. Make sure the statements match with your records, and investigate any unexplained discrepancies.
4. Print and Mail Out Tax Forms
If your fiscal year coincides with the calendar year, you must print and mail certain forms by a certain time. If your fiscal year doesn’t coincide with the calendar year, some of these deadlines may still apply, so be sure to double-check with your accountant.
- 1099s: These forms should be mailed no later than January 31 to any independent contractors you hired. Don’t delay in case there are errors.
- 1096: This form must be mailed to the IRS no later than February 28.
- Payroll Forms (e.g. W-2, W-3, 940, 941): Print and mail these forms as soon as you can, especially if you’re handling it yourself and not asking an accountant or firm to do it. Remember that your employees cannot file their taxes until they receive a W-2, and many people like to file as soon as possible.
The end of the fiscal year is a crazy time for any business, but smaller businesses feel the pinch even more due to limited staffing and skill-set availability. Prepare yourself and make sure to cross off all of the steps necessary for a successful and responsible end of your fiscal year.
Looking to reduce your bills in the new fiscal year? If so, here are seven ways to instantly reduce your business expenses.