Ensuring your financial records are in order is hugely important to the success of your business. Not only does it keep everyone up-to-date on your profits and losses, but in a legal sense, it's necessary to have your records straight. It makes closing your fiscal year easier to execute and ensures all required documents are in the right place, especially when dealing with the IRS.
However, understanding just what exactly goes into a fiscal year close can be confusing, especially for new business owners. While we work with our customers to close their fiscal year, we still recommend keeping track of your finances as well. It makes good business sense and allows you to understand what exactly is happening with your money.
With that, let's examine what steps you should take when "closing out" your company's books for the end of the fiscal year.
What to do before the last day of your fiscal year
1.Review Profit/Loss Statements
Your P&L statement is a snapshot of your company's financial performance. Ask yourself, what does your revenue look like now that the year is almost over? Do you anticipate any other large expenses to hit? If not, think about how much money you have available and decide whether or not to make a large purchase before the end of the year so you can depreciate the item.
2.Verify Vendor Files
When reviewing year-end paperwork, it is essential to review all vendor information (including 1099s) and any outstanding loan information. Make sure all 1099 forms are up-to-date and accurate and make sure all information is entered correctly so that the correct information will populate when printed.
If your business sells products, we recommend conducting an inventory assessment and comparing it to the last report's results. Make any necessary adjustments to have an accurate account of how much capital you have wrapped up in inventory.
If you're a service business, you'll want to take inventory of office elements such as equipment, computers, office supplies, etc. Make a list of discarded equipment or equipment that needs repair. If you lease office equipment, review your contract and make sure the terms are still appropriate for your situation.
4.Create a Budget
It's never too early to plan. Review your statements from the current year to determine patterns in the things you need to budget and plan for. By taking stock of your expenditures from the current year, you'll better understand where to focus your efforts moving forward.
What to do before the first day of your fiscal year
1.Print End-of-Year Statements
While we recommend keeping everything in the cloud, we understand that it might be helpful to print out your profit and loss statement and/or your balance sheet to review with your team. It may also be useful to examine how much revenue each client generated over the past year. Like most metrics, your end-of-the-year statements are as helpful as you want them to be. Choose the data that will tell you what you need to know.
2.Create Depreciation Entries
Depending on how savvy you are with your finances, you may need your controller's help for this step. The benefit of listing depreciation is it decreased your amount of taxable income that you must report. The IRS looks for four characteristics to depreciate assets.
The company must wholly own the asset.
The asset is used to produce income.
The asset must have a determinable lifespan.
The asset should last more than one year.
Here is a list of assets excluded by the IRS in case you need to cross-reference.
3.Reconcile Your Accounts
While your controller handles this task, we always recommend reviewing the final documents. Make sure the statements match your records and investigate any unexplained discrepancies.
4.Print and Mail Out Tax Forms
Again, your controller will take care of this process, but you must know what forms are due on what dates. Even if your fiscal year doesn't coincide with the calendar year, these deadlines will still apply.
1099s : These forms are mailed no later than January 31 to any independent contractors you hired.
Payroll Forms ( W-2, W-3, 940, 941): these forms need to get mailed as quickly as possible. 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 a fiscal year is a crazy time for any business, but smaller companies may feel the pinch more than others. We strive to provide our customers with a smooth year-end close but suggest you prepare and make sure to cross any necessary steps for a successful end to your fiscal year.