Complete Guide to Year-End Finances
December 2, 2019 | Last Updated on: July 21, 2022
December 2, 2019 | Last Updated on: July 21, 2022
Year-end finances are often overlooked. But making a few subtle changes in the way you handle year-end finances can save your company money at tax time.
As it often does for individuals, the end of the year feels like – and often is – the end of a new chapter for every business. It’s a time for looking back at what went well over the previous twelve months and for looking into the future at what the next year could hold.
For a business, an annual reassessment can take many forms or be focused on a myriad of different aspects of the company. One of the most important areas to examine is your company’s finances.
You’ll need to gather all of the relevant data that will allow you to look at your company’s finances holistically. Some of those data points can be found in:
All of the documents where you can find information about the money that came into or left your company need to be gathered at the end of the year and passed along to your accountant, if you’ve got one. Tax season is around the corner, and your accountant may be able to save you money or headaches if they’re able to assess your finances as early as possible.
Many financial documents may require revision or correction before tax season. It’s a wise choice to have these documents in your accountant’s hands as soon as conceivably possible in order to avoid a time crunch, when haste can create opportunities for more or worse errors.
Assessing the data will cast light on the way your business is trending, for better or worse. If it’s your first year in business, this will be the baseline for growth for the following year and years to come. If you’ve been in business a while, compare your financial statements to years previous, and compare your finances to where you’ve been projected to stand according to your business plan.
There are sometimes more questions than answers to be found in the numbers. Are your revenues holding steady while your expenses rise? Did your total marketing costs increase by 15% while your sales held steady?
Spotting trends in the numbers can help you identify places of emphasis for your company. An annual review can also help you plan better month to month. When you look at the last three years as a whole, do you see a dip in sales every summer? Why’s that? Can you do anything to fix the seasonal issue, or do you simply need to do a better job of preparing for the reduction of cash flow?
You may also identify trends which are unequivocally positive news. If you look at the year as a whole and in conjunction with previous years’ data, you may see consistent growth in revenue. That means you’re moving more product every month than you did the previous.
In addition, you’ll want to look closely at your company’s relationship with debt. Debt is, of course, as much a part of running a company as anything. But you want to make sure that your company has a healthy relationship with it. Is your debt growing faster than your revenues? What’s the ratio of your company’s value to its total debt?
Many business owners would, of course, prefer to hire a subject matter expert to help spot these trends and assess finances. If you’d prefer to delegate much of the math involved in spotting trends and, you may want to hire an accountant.
While you focus on running your company, hiring new employees, marketing your product, and all of the day-to-day decision-making business success requires, the right accountant can do much of the above work for you.
Hiring an accountant or other financial professional saves you the headache of identifying subtle trends, but he or she is also valuable for the other ways in which their professional knowledge is put to use with your year-end finances. Filing business taxes can be very complicated, tedious, and difficult. Your accountant will be able to look over your documents and find ways to save on your tax bill and avoid a dreaded audit from the IRS. In short, an accountant will make sure your finances are in proper order and are giving back the information you need to run your company.
Now that you can sit down and look at your previous year’s numbers, your trends, your tax documents, and the advice of your accountant, you can think of what your company will look like in the near future.
You should have a realistic view of how the trends in your finances will impact your profit and loss in the following year, which will allow you to plan ahead. And you can use those numbers to compare your company to your business plan. Are you still in lock-stop with the plan you created for your company?
Once you’ve looked at your company’s financial health as a whole and have a clear and objective view of where you stand, you can begin to set goals for the next year.
The best goals for a company (or a person) have a few things in common. They’re measurable, specific, attainable, and time-specific. Having completed a year-end financial assessment puts you in a prime position to set goals meeting these attributes.
“Make more money” is a common goal for any company, from mom-and-pop bakeries to Microsoft. But that’s not measurable, specific, attainable, or time-specific.
“Increase sales of our flagship product by 10% year-over-year by the end of March” is all of those things. You’ve got a specific, measurable metric. A timeframe by which to achieve it. Everything a good goal needs.
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