It’s never too soon to start thinking about your end-of-the-year financial tasks. In fact, it is advisable to set aside some time each month, and quarterly, to evaluate your financial strengths and weaknesses. This way, when the end of the year rolls around, you already have a good grasp of the way your finances have been working for your business.
However, when the time does come, do you know what you need to do to be successful?
Run and Review Key Reports
Here's the truth: you’ve been collecting useful data about your company all year, and now is the most opportune time to use it. Hopefully, you have been periodically checking in on your data to do some analysis and see where your company falls in line with your beginning-of-the-year expectations.
However, now is the time to really analyze this data for clarity and purpose. What you do with your data at this point in the year can have a massive impact on your success in the year ahead.
Here are some reports you need to run at the end of the year to get a good understanding of your finances:
Annual balance sheet
Yearly income statement
Cash flow statement for the previous four quarters
Once you have successfully run each report, perform a comparative analysis of each of them to last year’s data. This will show you what your business did well and where you can improve in the year ahead. From there you can start making big financial decisions with confidence because you’ll have data as your support.
Reconcile Your Accounts Receivable
If possible, avoid leaving any accounts open at the end of the year. This means you have to do your best to collect all of the payments owed to you before closing the books. It is not an easy feat, but if you have outstanding receivables, know you are not alone.
There was more than $78,000 in the average outstanding receivables for small businesses in the US in 2019. That’s quite a lot of money to be left in the lurch between one year and the next. But it happens across every industry and is not the end of the world.
The best way to lower the time between sending an invoice and receiving your payment is to use the accounts receivable turnover ratio. It will give you the average number of days it takes to receive payment. Your goal is to lower this ratio in the year ahead, so take your average from the current year and implement ways to get a lower average by the end of next year.
When you lower your accounts receivable turnover rate, you reduce your risk and stand to gain more financially.
You’ll also receive a better score for risk reduction when it comes to your overall financial statement.
Why is this important? A lower risk score means you stand a better chance of getting lower interest rates on loans and more capital when borrowing money from lenders. Since your business runs less of a financial risk compared to other ventures in your industry and community, you get out ahead, putting your business in forward motion with growth for the coming year.
Get a Jump Start on Your Taxes
Now it’s time to switch gears and focus on your finances for tax preparation.
First, identify all of the important documents and necessary paperwork you will need for your tax preparation.
Next, you have to see if your business qualifies for any deductions. This might include deductions on office equipment, employee travel expenses, or green construction initiatives. You should check to see if your business qualifies for deductions specific to the industry or location where you operate. This added step could save you a lot of money in the long run.
Finally, as part of your tax preparation, prepare to analyze your tax strategy from the current year. How did that tax strategy pan out? Make the needed adjustments now and so you’re ready for next year’s tax season well in advance.
Prep for the Year Ahead
Now that you have a good grasp on your year, it’s time to start looking towards the future. Here are some of the areas you can build on now to set you up for great financial gains:
Start making goals for the year ahead
Begin creating budgets and forecasts
Determine what systems worked (and which didn’t) and make adjustments where needed
Another tip is to avoid waiting until the very end of the year to map out your business plan and financial strategy for the year ahead. Let your plan gradually come together throughout the last few months, that way your focus can be on execution rather than building and refining your strategies. This allows you to make better projections about where your business could go if you follow your plans closely.
Turn to an Experienced Accounting Partner
The end-of-the-year checklist keeps getting longer. Even the smallest slip-up can negatively affect the start of the year ahead.
To put your business in a position to grow, work with an experienced accounting partner, like SIMPLY Financials PLUS. We will help get your business ready for the end of the year and prepare you to take on the year ahead.
To learn more about how we can help, visit https://www.simplyfinancialsplus.com/.