How to Wrap Up Your Financial Year With a Bow
December, for many small business owners at least, can best be visually summarized by that scene in the live-action Grinch movie where Cindy Lou discovers the Whoville newcomer lurking in the city mailroom. Except, in this case, it plays out:
“You’re the… the… the… the…”
“The financial year-end!” *Gasp!*
Can you relate?
With the best of intentions, of course, might you have put off record-keeping, bookkeeping, and tax preparation for later? Well, I’ve got bad news. It’s later.
But the good news is that even if this is you… Even if you procrastinated and now feel caught unawares, you can get back on track. Below, I’ll tell you how.
Diving right in by addressing your to-do’s as categorized above.
First, record-keeping.
Different from bookkeeping. Record-keeping is the thing based on which you can complete your bookkeeping. It’s where, no matter how chaotic it may at first feel, you simply gather everything together.
Export your business bank and credit card statements. Save them in a safe and permanent place.
Download and/or print any receipts currently stored in your email inbox. Save them in a safe and permanent place as well.
Round up proof of business purchases made via personal credit card or bank account. Those are still tax-deductible.
Log in to all of your subscription accounts and download and/or print your corresponding annual statements.
The importance of these steps is the substantiation of both your level of income and expenses incurred in case of an audit.
Then, bookkeeping.
The thing you’ve likely heard me preach on the most… But it truly is that important. If you’ve thus far neglected bookkeeping, it’s time to right the ship.
At a minimum, enter all recorded transactions into a Google Sheet. Why? Because you need these not only digitized but also able to be categorized for tracking organization going forward (bookkeeping is now a thing that you do, ok?).
Google Sheet or bookkeeping system?
If you’re new to bookkeeping, while a Google Sheet will work ok for now, I highly recommend upgrading to an actual system at your first opportunity for the sake of your long-term sanity. I mean it.
If that feels overwhelming at this moment, you can add it to the top of your list of goals for the new year (I happen to have the perfect resource to help rid the bookkeeping system set-up process of all unnecessary stress, by the way.).
How to close out your bookkeeping year and save yourself some major $$$:
If, however, you have been keeping up with your bookkeeping (applause), begin work on reconciling your system or spreadsheet to your business bank account.
That means putting on your detective goggles and comparing each list of transactions line by line while looking for discrepancies.
You’d be correct if you guessed that this process isn’t exactly the sexiest, but it’s terribly important and can save you tons of money.
This past year, actually, while conducting this type of check during the onboarding process for a new client, I found that her bookkeeping system had for months been accidentally recording every cash deposit into her business bank account twice.
That means that her system reported twice as much revenue as was consistent with reality; therefore, it reported a level of profitability that was twice as high. So, when she turned all of this information over to her tax expert, they found her tax liability to be double the amount it should’ve been.
She was getting ready to overpay in taxes by ~$15k! Not exactly chump change!
But because we caught the discrepancy between her business bank account and her bookkeeping system before the financial year-end, we still had time to make the necessary corrections to avoid overpayment.
Now you feel motivated, huh? Good. Do this now!
It’s important that you conduct the same process of comparison against your bookkeeping system with loans, credit card balances, and inventory, as those items will also impact your taxable income.
Next, tax preparation.
Technically, everything we’ve discussed so far is tax preparation; it’s all related. But what follows are some tax things a bit more on the nitty-gritty side.
Request a form W-9 from all contracted service providers (not employees) to whom you paid more than $600 over the past year. You’ll use the information on each completed W-9 to complete a form 1099 on behalf of each provider, and then will submit those 1099s back to them as well as to the government.
Accelerate your January expenses if you can. Though, please do this scrupulously and with wisdom. Don’t purchase anything unnecessary, but anything you can buy now (and in bulk, if applicable) rather than later will save you money come tax time.
Taxes can feel lofty in concept, but if you routinely take steps of preparation for tax payments, they’re less likely to catch you off guard or interfere with other business financial plans.
And lastly, like a champ, prepare for next year.
Flip the calendar deliberately and with a plan ready to set in motion. Be in control of your business, rather than the other way around.
Make a hot date with your financial statements. You’re thinking ‘yeah, right’, but you know what’s really sexy? Capitalizing on opportunity and earning what you’re worth. Identify financial trends, hardest-hitting expenses, and top profit margins. Figure out where in the coming year you can lean into what works or where you need to pivot away from what’s holding you back.
Review accounts receivable. Send reminders regarding overdue invoices or outstanding requests.
Increase your prices! Refuse to lose traction because you’re nervous about declaring the worth of your business offerings. Inflation between October 2020 and October 2021 increased by 6.2%. The cost of running your business is going up; so should the cost of buying from you.
Join the Profit to Prosperity Membership! Access all the benefits of having your own personal CFO, without the steep monthly bill, plus opportunities to collaborate with a supportive community of fellow female business owners.
Level up your success. Make next year your most financially advantageous yet.
As always, feel welcome to reach out with questions.
- Stevie
