Have you been asking yourself where 2022 went? In this blog, we’ll talk about year end record keeping and some easy steps to help you close out the year.
It’s time to close out the books!
But what does it mean: “Close the books?” As a small business owner, “The Books” are a record of your revenue, expense and income summary reports. At Paris SBDC, we encourage you to produce these reports once a month – it really helps you know where you are financially. At the end of the year, business owners can close their books by zeroing out their income and expense accounts and moving the numbers to the balance sheet.
It’s all about moving numbers:
Accounting software has become a necessity for any size small business, so we would strongly encourage you to get a program that fits your business needs. While we can’t recommend one program over another, we can tell you several places to look to find accounting software that may meet your needs. Here are several to consider:
- Quickbooks: They have a free on-line version, too! Great for any business.
- Quickbooks Self-Employed: Many free-lance or contract workers like this program
- QuickBooks Online – See their video and article.
- Quicken Deluxe: A great over-all software at a reasonable price.
- Freshbooks: Great for a service-based business.
- Excel Bookkeeping: If you are already familiar with Excel products, this would be a simple transition.
The best thing about accounting software is with a few simple steps, the program will close your books for you, create your balance sheet, income and loss statements, and prepare documents that you’ll need for taxes. Suggest you get end of year entries from your CPA before you do the year end closing. Types of accounts to watch for? Suggest reconciling your notes payable and confirm you recorded the principal/interest payments; your CPA likely has depreciation to record; update your inventory; review your accounts, write off bad debts. These are just to name a few, contact your CPA for feedback; it is best practice to have your books match what you file for your income tax return.
Is closing out the books absolutely necessary?
It really is a necessary part of business to close out the books for the year and keep records for yourself and for your tax return. You will need the information to file taxes and it will make April and tax season far less complicated and intimidating. Depending on the accounting software tool you use, it may also improve the application efficiency and data storage.
How do I close the books?
There are a few simple steps to closing your books that are both easy to do and rewarding when finished. You’ll know exactly how profitable you were, if you can afford employee bonuses, and if you have what you need for tax season. Here are a few steps for the closing of your books:
- Send invoices and invoice reminders.
- Collect past-due invoices and decide which invoices you may need to write off or consider a loss.
- Gather and analyze financial data:
- Monthly balance sheet
- Assets, Liabilities, Equity
- Profit and loss – Income Statement
- Revenue, Tax Expense, Operating costs, Cost of goods sold, Depreciation, Net income or loss (EBITA)
- Cash Flow statement
- Monthly balance sheet
- Complete an inventory
- Organize and log business receipts (don’t just put them in a shoe box, to be sorted by your CPA)
- Complete bank and credit card reconciliations
- Pay outstanding invoices
- Back-up your information and run hard copies of documents you will need (See our blog on keeping paper in a paperless world.)
- Compile tax documents:
- Financial statements
- Bank and credit card statements
- Petty cash records
- Invoices and receipts
- Sales records
- Payroll records
- Loan information
Tips to make year-end close easier:
There’s no reason to dread year-end close! There are several on-line resources that provide printable checklists of what to do and how to complete a year end close for small business. Here are a few more tips:
- Work on your year-end close just one hour a day (complete it in small pieces)
- Talk to your CPA about what is needed
- Get help – delegate filing of receipts and tax records
- Make inventory fun – have an after-hours counting party
- Reward yourself when you are finished: Think vacations, time off, or that chocolate bar you’ve been hiding in your desk!
For additional information on how to close your year-end and what records you should keep for your small business, contact us at the Small Business Development Center – SBDC – Serving Paris area: Lamar, Hunt, Hopkins, Delta, and Red River counties.