Year-end checklist for small businesses: 20 steps to prepare for the new year

The end of the year is always busy: Prepping for the holidays, making time for family, and planning for the new year take both time and commitment. As a small business owner, you have an even longer list of things to think about at the end of the year, such as income statements, taxes, and employee incentives.

It can be tricky to balance work and life as December 31 approaches. Nevertheless, devoting some attention to your business not only helps you end the current year on a high note, but also sets you up for success in the new year.

What actually needs to be done at year-end, and what’s more of a nice-to-have? Use this year-end checklist to ensure you take care of necessary business tasks before the end of the year. With these off your plate, you can focus on the things that matter most.

1. Run standard financial reports

2. Analyze cash flow statements

3. Verify vendor information

4. Reconcile accounts receivable

5. Double-check payroll and benefits

6. Know what forms to file

7. Gather tax documents

8. Implement tax saving strategies

9. Request filing extensions if needed

10. Think about year-end incentives

11. Examine your staffing needs

12. Celebrate business accomplishments

13. Update your business goals

14. Audit your website

15. Count and value inventory

16. Review marketing efforts

17. Backup computers

18. Backup contacts

19. Download important files and reports

20. Evaluate file naming conventions

1. Run standard financial reports

The end of the year is a great time to assess where your business stands financially and how its current financial situation compares to previous years. Use your preferred accounting software or system to generate a financial report. This report typically includes an income statement, a balance sheet, and a cash flow statement.

Your income statement, also known as a profit and loss statement, is crucial to understanding your profits. This financial report is the best way to see, at a glance, where your business stands financially and what your outlook is like for the new year. If your profits are lower than expected, you may want to make some changes as you head into the new year. If your profits are higher than expected, it might be a good time to make some larger investments for which you can record future depreciation.

It’s a good idea to speak with an accountant before making big purchases. An accountant will make sure you have the cash on hand to make the purchase and help you understand depreciation rules.

2. Analyze cash flow statements 

A cash flow statement records how your business spent money throughout the year. Cash inflows equate to income, and cash outflows are business expenses. Your goal is to generate more money than you’re spending. Toward the end of the year, it’s a good idea to analyze your cash flow statement to identify cash flow trends throughout the year.

Cash flow problems happen for a variety of reasons. The faster you can identify the problem, the faster you can correct it. It’s important to note that net cash outflows don’t necessarily indicate a business has a cash flow problem. Cash flow becomes a problem when outflows exceed inflows. 

To calculate cash flow, separate cash flows into three specific activities:

• Operating activities: Revenue and expenses.
• Investing activities: Assets purchased and assets sold.
• Financial activities: Loans and repayments.

The cash flow formula adds a beginning cash balance with net changes in each activity to determine the ending cash balance.

3. Verify vendor information

A lot can change for a business in a year, and the same goes for your vendors.

At the end of the year, verify that the contact information, including phone number, email address, and contact name, is still correct for each of your vendors. Purge the system of any inactive vendors or inaccurate information. If time permits, evaluate your vendor relationships and look for opportunities to negotiate better deals in the new year.

4. Reconcile accounts receivable

Accounts receivable is the amount your customers owe you after purchasing your goods or services on credit. It’s a running list of unpaid invoices and clients that still owe money for work already completed. If your list is longer than you’d like, you’re not alone. US business owners averaged around $32,000 in unpaid invoices, according to QuickBooks 2023 Small Business Insights. 

Calculating your accounts receivable turnover ratio can tell you how efficiently your business collects revenue. A higher ratio indicates that your customers pay their debts quickly. A lower ratio indicates that your collections procedures could use some work.

No matter what your ratio, if you have outstanding receivables, it’s a good idea to collect funds from unpaid invoices before the end of the year. Reconciling accounts receivable boosts your cash flow and allows you to start the new year without outstanding invoices.

5. Double-check payroll and benefits

It’s better to stay on top of any issues or corrections you need to make payroll before the year ends. Ensure you account for taxable fringe benefits, such as third-party sick pay or a company car. Other benefits that are easy to forget include educational reimbursement, health and life insurance, and transportation subsidies.

6. Know what forms to file

Preparing your taxes ahead of time ensures you have everything needed to file and can help avoid penalties. Knowing which forms you’ll need to file for small business taxes ahead of time is an essential step. 

The tax form you have to file will depend on your business structure—and you might even have to file a couple of different forms. Some common tax forms for small businesses and solopreneurs include: 

• Schedule C: Reports income as a sole proprietor together with Form 1040. 
• Schedule K-1: Reports income if you’re an S corporation or partnership owner.
• 1099-NEC: Reports nonemployee compensation
• 1099-MISC: Reports rental income or gross proceeds. 
• Form 1120: Reports income if you’re a C corporation
• 1099-K: Reports card payments and third-party network transactions. 

Before the year ends, consider talking to a dedicated tax professional to understand which forms you need to file and make a list of them.

7. Gather tax documents

You may have to look for different types of paperwork as tax season approaches. Stay prepared by keeping a tax checklist and gathering the necessary documents ahead of time.

Here are some common documents you may need to gather to submit your business’s taxes: 

• Federal Tax ID number
• Social Security number
• Previous year’s tax returns
• Bank account and credit card statements
• Accounting journals and ledgers
• Financial statements
• Invoices
• Receipts for business expenses
• Employee and non-employee tax forms

Plan ahead of time to find these documents, gather employee tax forms, and keep all documentation stored in one place to make it easier to file your taxes. 

8. Implement tax saving strategies 

If you want to reduce your small business tax bills, look for tax deductions and credit opportunities before the year ends. You may find expenses and investments you can deduct from taxable income, which reduces how much you’ll owe for tax returns. 

Understand which tax deductions and credits you’re eligible for before tax season to ensure a lower small business tax bill. Some common deductions for small businesses include: 

• General business expenses
• Legal services
• Advertising
• Rent and insurance
• Employee salaries and benefits

There are also different small business tax credits you may qualify for, including the Investment Credit, Work Opportunity Credit, and Small Employer Health Insurance Premium Credit. Prepare the documentation beforehand and consult with a tax preparation expert to maximize your savings.

9. Request filing extensions if needed

Sometimes your tax situation is complex, or you can’t prepare everything ahead of time. If you believe you won’t be able to file your business tax return on time, consider requesting a tax extension. 

Use Form 7004 to get a six-month extension for business taxes. You’ll still have to keep up with your estimated tax payments even with an extension, as it only allows you to submit your tax forms later.

10. Think about year-end incentives

Once the financial tasks are out of the way, take a good, hard look at your team. After all, they’re the lifeblood of your business. 

The end of the year is a great time to reward your team for the work they’ve done over the past 12 months. This reward could come in the form of business-wide paid time off, flexible schedules, and monetary incentives. A year-end reward or holiday bonus is a good way to boost morale and increase worker satisfaction as you head into the new year.

11. Examine your staffing needs 

Take inventory of your team and workload to determine whether you’ll need to hire more employees in the new year—or hire your first one if you’re a solopreneur. You’ll want to be sure you’ve budgeted for any additional personnel you plan to hire within the first or second quarter.

On the flip side, your business needs may have changed throughout the year. If you’re overstaffed, consider creating new roles to reallocate your team’s talent. You might also consider reducing hours or rearranging schedules to better suit your business needs.

In addition, the end of the year is a good time to review your compensation and benefits plans to ensure they’re still competitive.

12. Celebrate business accomplishments

As the end of the year approaches, don’t forget to take a look back at everything you and your team have accomplished. Document your wins and share them widely. Your employees will appreciate ending the year on a high note, and they’ll feel motivated to hit the ground running come January. This is also a great time to recognize any outstanding performers and create promotional paths for them to follow.

13. Update your business goals

Using your financial statements, customer feedback, and input from your team, assess your goals from the previous year and determine whether or not you accomplished them. Did you achieve what you set out to do? Or did you find yourself taking an unexpected path to a different kind of success?

With the earnings from the previous year in mind, set goals for the coming year. Financial goals should be a given, but make room to evaluate management goals and client goals, too. Once you’ve written down a few goals for the new year, create a high-level action plan for each goal to help you achieve it.

14. Audit your website 

In a world driven by e-commerce, it’s more important than ever to have a solid website for your business. First impressions matter, and for many of your customers, your website is the doorway to your business.

To start, go through your website and click on every single link. Try sending yourself an email or message from the “contact us” form. Call the 800 number and make sure it works. These may seem like mundane tasks, but these systems break all the time. As your digital calling card and first impression of your business, your website is an important commodity to keep in fine working order.

15. Count and value inventory 

Counting and valuing inventory before the end of the year is a great opportunity to keep up with customer demand and use it on tax returns. Whether you have an automated inventory tracking system or are due for an inventory analysis, take some time at the end of the year to analyze your inventory. 

Choose an inventory valuation method and establish a specific day and time to conduct the inventory count. This is also a good time to organize your inventory space to ensure all items are easily accessible and properly labeled. Then, record quantities, calculate total inventory value, and update financial statements so your business is ready for the next year.

16. Review marketing efforts

Evaluate your business’s marketing efforts at the end of the year to identify the effectiveness of your strategies. Understanding what worked and what didn’t can help you make better decisions for the upcoming year. 

Here are some steps to evaluate your marketing efforts: 

1. Review your initial marketing goals
2. Collect relevant marketing campaign data and metrics
3. Evaluate your KPIs to determine the success of campaigns
4. Compare the results to your industry and past years
5. Calculate the return on investment (ROI) for each marketing campaign

Next, start planning ahead. Develop a marketing plan for the new year based on your evaluation. Outline specific changes, new strategies, and optimizations to promotional campaigns and sales targets.

17. Backup computers

No matter how much or how little you work with technology, it’s still a good idea to make sure your IT ducks are in a row by the end of the year.

It’s best practice to keep backups of important data. Make sure to back up and secure your important files, including accounting documents, client information, creative briefs, and valuable emails. If your employees deal with important documents, provide them with external hard drives or access to a cloud-based storage system to ensure all data is stored safely and securely as you enter the new year.

18. Backup contacts 

Whether you do most of your business over the phone or via email, make sure to back up all of your contacts, even if that means writing them down in an old-fashioned Rolodex. In the same way that you updated your vendor information, make sure you have the most up-to-date information for your most important business contacts.

19. Download important files and reports

It might seem counterintuitive, but if you keep important documents or reports on a cloud-based storage system, it’s a good idea to download “hard” copies and back them up to an external hard drive. The golden rule for data backup is 2:1. That is, create two digital copies, stored in two separate locations, plus one offline copy (preferably stored somewhere else).

20. Evaluate file naming conventions

If you don’t already have a companywide file naming system, consider implementing one. For example, if you manually save receipts as PDF documents, you might adopt a convention like “LastName-Date-InvoiceNumber.”

Adopting file-naming conventions across the company is especially important for businesses that share servers that multiple employees access. When everyone follows the same naming conventions, your files stay organized and easily accessible. Even if you don’t share servers, it’s still a good idea to implement some naming conventions to keep your files organized as your business grows.

As you work to back up your documents and data, make sure you’ve named and organized your files appropriately. Change file names now so you’re not stuck searching for something come June.

Run your business with confidence

Closing out the end of the year is a daunting task, but it is manageable if you keep and follow this year-end checklist. If you work with a trusted accountant, make an appointment with them as early as possible. And as always, the more you can plan for these tasks throughout the year, the easier your year-end will be.

Investing in all-in-one accounting software, like QuickBooks, helps you keep track of everything, such as financial reports, payroll, and inventory, so you won’t have to worry about fetching documents and reports to prepare for the new year.