As the year comes to a close, business owners are tasked with an essential responsibility: closing out their financial books. This process ensures that your business is prepared for tax season, has accurate financial records, and maintains a clear picture of its financial health. Below is a guide to help you understand what needs to be done to close out your books successfully and how partnering with a bookkeeper can make this process smooth and stress-free.

Reconcile All Bank and Credit Card Accounts

One of the first steps to closing out your books is reconciling your bank accounts and credit cards. This involves matching the transactions recorded in your accounting software or ledger with your bank statements to ensure everything aligns. Look for any discrepancies, such as missing deposits, incorrect charges, or unrecorded expenses. Resolving these issues now prevents future headaches.

If you’re using software like QuickBooks, use their reconciliation features to streamline this process. For manual bookkeeping, carefully review your statements and records to ensure no transaction is overlooked.

Verify Outstanding Invoices and Payments

Next, review your accounts receivable and accounts payable. Ensure that all outstanding invoices sent to customers have been followed up on and recorded accurately. Late payments from clients can skew your income figures for the year, so it’s essential to address them.

Similarly, check your accounts payable to confirm all vendor bills have been recorded and paid. If you owe any outstanding amounts, schedule payments before the year ends to avoid late fees or penalties.

Review and Categorize All Expenses

Properly categorizing expenses is vital for accurate tax reporting. Review your expenses for the year to ensure everything is correctly labeled. Categories might include office supplies, rent, utilities, travel, and advertising. Misclassified expenses can lead to errors in your financial statements and may even trigger an IRS audit.

Take this time to identify any expenses that may qualify as deductible business expenses. Accurate categorization can maximize your deductions and reduce your tax liability.

Calculate and Record Depreciation

If your business owns assets such as equipment, vehicles, or property, you’ll need to account for depreciation. Depreciation reduces the value of these assets over time and is an essential part of your tax filings. Use accounting software or consult with a bookkeeper or CPA to ensure depreciation is calculated correctly.

Perform a Physical Inventory Count

Conducting a year-end inventory count is crucial for businesses that sell physical products. Compare your actual inventory to the records in your accounting system and adjust for discrepancies. Shrinkage, theft, and human error can cause inventory levels to differ from what’s recorded.

Updating your inventory ensures accurate reporting of your cost of goods sold (COGS), a critical factor in determining your taxable income.

Assess Payroll Records

Payroll is one of the most critical and regulated areas of business finance. Verify that all employee wages, bonuses, and taxes have been recorded correctly. Double-check that year-end bonuses are included in December payroll reports and that all payroll tax payments are up to date.

Also, ensure that the W-2s for employees and 1099s for contractors are accurate and ready to be distributed by January.

Review Financial Reports

You will generate and review your financial statements once all transactions have been reconciled and recorded. Key reports to analyze include:

• Profit and Loss Statement: Summarize your revenue and expenses to show whether your business was profitable.

• Balance Sheet: Provides a snapshot of your business’s assets, liabilities, and equity.

• Cash Flow Statement: Tracks the movement of cash in and out of your business.

Review these reports for accuracy and use them to assess your business's financial health. Identify trends, strengths, and areas for improvement to help guide your strategy for the next year.

Prepare for Taxes

Closing out your books is directly tied to preparing for tax season. Ensure that all records are accurate and up to date, as they will form the basis of your tax return. Consider consulting with a CPA to review your financials, identify potential deductions, and strategize to minimize your tax burden.

Having organized books makes it easier to file taxes on time and reduces the likelihood of needing an extension. It also helps you avoid penalties for late filing or underpayment.

Backup and Secure Your Records

As a final step, back up and secure all your financial records. Whether you use cloud-based storage or external drives, ensure that your data is safe from loss or theft. In case of an audit, retain these records for at least seven years, as required by the IRS.

The Year-Round Benefits of a Bookkeeper

Closing out the books can be a daunting process, especially for small business owners juggling multiple responsibilities. Hiring a professional bookkeeper can make this process seamless and stress-free. A bookkeeper ensures your financial records are maintained accurately throughout the year, giving you more time to focus on growing your business.

Here’s how a bookkeeper helps:

• Ongoing Reconciliation: Bookkeepers regularly reconcile your accounts, preventing discrepancies from piling up.

• Expense Tracking: They keep your expenses categorized and organized, saving you time at year-end.

• Payroll Management: Bookkeepers handle payroll processing, ensuring compliance with tax laws and on-time reporting.

• Tax-Ready Records: By maintaining clean books, your bookkeeper prepares your business for tax filing, reducing the chances of filing errors or needing an extension.

• Financial Insights: With up-to-date records, a bookkeeper can provide valuable insights into your business’s performance, helping you make informed decisions.

Working with a bookkeeper means you’ll never have to worry about last-minute scrambles to close out your books or stressful tax deadlines. It’s an investment that saves time, reduces errors, and gives you peace of mind.

Start Strong for the Next Year

Once your books are closed, use this opportunity to set financial goals and budgets for the coming year. Implement systems to address any inefficiencies or gaps you discovered during the closing process. Whether you decide to hire a bookkeeper or improve your existing financial practices, staying proactive ensures a smoother year-end next time.

By following these steps and leveraging the expertise of a professional bookkeeper, you’ll keep your financial records in top shape, stay compliant with tax laws, and gain valuable insights to grow your business.