New year – fresh start. Cliché? Yes. Possible? Also, yes. Especially when it comes to your accounting and bookkeeping processes.
We talked about the importance of cleaning up your books earlier this month. In preparation for Q1 planning, you want accurate insights into your profitability, a strong cash position, and the confidence that you can fund your future business growth plans.
Last week we advised that setting success metrics or KPIs and adjusting your Chart of Accounts accordingly was part of the path to starting strong in the New Year.
You have a great baseline… now what?
It is time to get ready to close the books, so you can start fresh in the new year. Here are some tips from the bookkeeping team at HireEffect.
Reconcile all your accounts
Start off by reconciling your cash accounts and make sure they match your bank statements. If you haven’t been doing this monthly, it may take you a while. Staying on top of this in the future will save you some headaches next year. Compare your deposits, withdrawals, and payments. Check for money in transit, outstanding checks, and any bank fees. Double-check for duplicate transactions, transactions with missing or incorrect information, and compare your cash balances. Pay careful attention so you can correct any errors that may have occurred over the year.
Next, reconcile any credit cards, liability accounts, asset and equity accounts, and your inventory account if you have one. Be sure that your assets are recorded, fixed assets are properly capitalized, and that loans and interest are booked correctly.
Review your A/P
Review your accounts payable. A/P are all ongoing expenses, and any other short-term financial obligation, including credit card balances. What do you owe, and do you really owe it? It’s important to review the “paper trail” if you see an expense that you don’t recognize or if the invoice seems too high. This can also help you identify fraud.
Then run an A/P aging report and pay off what you can now or make payment arrangements to do so soon. Knowing what you owe and when payments are due will help you better plan for cash flow purposes.
Review your A/R
You also want to review your accounts receivable. Who owes you money? Is anyone behind on their payments? Are there any bills you need to collect before the year-end? Are there any accounts you consider to be uncollectable that you can write off?
And don’t forget to double and triple-check that you have billed for all your work. You can’t collect what you’re owed if you haven’t invoiced for it.
Then run an A/R aging report and collect everything you can. It’s OK to call customers and ask about aged receivables. After all, they don’t work for free, either.
If you are behind on collections, here are some things to think about for 2022.
- Put your A/R process in writing with established net terms and a clear collection policy.
- Send your invoices out weekly or bi-weekly rather than at the end of the month.
- Offer discounts for early payments in full.
Tie up loose ends
Make a list of any long-term assets you purchased or sold during the year such as machinery or vehicles. Touch base with your tax professional and ask how those purchases or sales will impact your taxes. They may suggest some strategies for you to reduce your tax liability and it’s best to know what they are before the end of the year.
If you file sales tax, make sure you are current. Nobody needs that kind of liability hanging over them when 2022 arrives.
Get W-9s from your contractors and vendors if you have not already. While your 1099s aren’t due until the end of January (or the middle of February in some cases) you don’t want to be chasing the information down at the last minute. That adds far too much stress to the process.
Review your payroll accounts and make sure your payroll taxes are filed. Again, get it done so you can file year-end stress-free.
Finally
Take a deep breath and relax. Now you know that you’re in great shape when it’s time for year-end close and tax prep.
If you don’t feel like you can relax, we get it. Most of us didn’t start our businesses to learn bookkeeping and payroll. Stay tuned. Next week we will give you some tips on how to find the best bookkeeping solution for you and your business.