If you dread year-end paperwork and tax time, you’re not alone. Most entrepreneurs would rather pursue their ideas and passions than spend time and energy on the financial details. Here are a few suggestions to make your year-end close a valuable process rather than a necessary evil.
Be Proactive. If you’re not already, get caught up on accounting and record keeping. Don’t leave everything until tax time or the last week of the year. This doesn’t allow time for any year-end or tax planning.
Get Organized. Hopefully you’ve moved beyond the “shoebox of receipts” method and have a system for gathering, summarizing and analyzing your finances. You may be using software such as QuickBooks or Xero or a spreadsheet. Regardless, an organized system will make life easier. Whether you’re preparing your own taxes or using a preparer, you’ll be glad things are organized when it comes to tax time.
Reconcile Accounts. Bank and credit card accounts should be reconciled monthly. If you haven’t been in that habit, start now. This ensures transactions are recorded and accounted for and balances are accurate.
Take Inventory. If you sell products, complete a physical inventory count at the end of the year. Count both finished product and materials on hand. These should agree to the balances on your balance sheet.
Review Vendor Files. Make note of any vendors who were paid more than $600 for services over the course of the year. Unincorporated vendors over that threshold should receive Form 1099-MISC reporting the amount they were paid for services. A copy is also sent to the IRS. To gather the necessary information and determine whether vendors are corporations, have them provide you with a completed Form W-9, which can be easily found on the IRS website. Note that your completed Forms 1099-MISC are due to the recipient and the IRS by January 31, 2018. More information about 1099s can be found here.
Review Financial Reports. Ideally, you’re already reviewing financial reports on a monthly basis. At a minimum, you should be able to generate a balance sheet and income statement. The balance sheet shows assets (what you own), liabilities (what you owe) and equity. Its focus is liquidity. The income statement shows your revenue, expenses and net income and is focused on profitability. Review these reports and, if possible, compare to your budget. Identify areas that need attention. Were goals achieved in 2017? Are you profitable? Are there areas where you’re overspending?
Plan for 2018. This is the perfect time to identify or modify goals for next year. Understand your business’s financial position in 2017 and set goals accordingly for 2018. Develop a budget to guide your financial plans for next year. In addition to revenues and expenses, project your cash flow needs. Consider whether your current resources allow you to achieve your goals. Will you need additional financing or personnel?
For more information or questions, please contact one of RubinBrown’s Entrepreneurial Services Group professionals.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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