Now that you’ve read my previous blog and gathered necessary information, it’s time to begin the year-end closing work itself. It’s not a particularly difficult undertaking but, especially if you’ve been slack in your monthly closings, it can be time consuming.
Begin by using the Year End Closing Checklist I suggested you prepare. Mine usually begins with the following, more time-sensitive tasks:
Collecting Past Due Invoices
While most businesses will send out December 31st account balance statements and past due notices, I suggest trying to collect money prior to year-end. Past due reminder emails should be followed-up by phone calls. Depending on the circumstances, consider offering payment plans or discounts. Remember, you must demonstrate that you attempted and failed to collect before you can directly write off aged receivables.
Physical Inventory Count
In an ideal world, your business would conduct a physical inventory count as of December 31st. You could adjust any balance sheet discrepancies and start the new year on a solid basis. Vacation scheduling and other operational realities make it difficult to plan for such work the day before New Year’s. Instead, plan to compete a year-end inventory before everyone takes time off for the holidays. You can adjust for December month-end inventory changes as needed.
Depreciation & Amortization
Many small businesses book depreciation and amortization expenses at year end, rather than on a monthly basis. I suggest updating these schedules and pre-booking these expenses prior to year-end.
The above three steps will help you estimate year-end results. You will have identified any account receivable write-offs, inventory adjustments, and depreciation and amortization expenses. With proper, monthly budgeting in place, it should now be possible to project annual profits and take any necessary actions before year end, such as rewarding employees, or implementing tax reduction measures.
With these initial tasks done, you can now proceed to the more detailed year-end closing steps, including: Reconciling accounts, HR compliance, updating approved client/vendor lists, and finalizing necessary state and federal forms.
For instance, did you know that if your business has more than 10 employees it may have to fill out and post OSHA Form 300? For suggestions like this, and more year end closing details, look for my next blog. You may be surprised by some of my tips.