Avoiding the Year End Scramble
An African proverb states, “The best way to eat an elephant in your path is to cut him up into little pieces.” Preparing for business taxes at the end of the year can seem like eating an elephant – an overwhelming task. Cutting up the work into smaller pieces, and keeping up on it throughout the year, can make the task manageable. It can also highlight business opportunities or pitfalls that might not be apparent if the accounting tasks are left to the last moment.
Which areas should be kept up to date and what are the benefits?
When customer payments are received, deposits should be made as soon as possible, and promptly recorded in the accounting software. Electronic payments and automatic bank feeds into the accounting system can further simplify this process. Timely invoices, accurate records, and up-to-date deposit information improves cash flow, allows the business to quickly follow-up on outstanding or missing payments, and identifies customers who are falling behind on invoices.
Vendor invoices should be entered into the accounting software promptly. If the invoice is for services provided, a W-9 should be requested from the vendor, for 1099 purposes at year end. If a large invoice is received for a piece of equipment or other asset that will be capitalized and depreciated over time, make a copy for your tax accountant. Accurate records in this area allow the business to take advantage of vendor discounts for timely payment, eliminate double payment of invoices, identify price increases early on, and recognize trends in vendor payments like large increases or decreases in frequency and/or amount. In addition, when January comes and 1099 information is due, you are prepared.
If the business is not using either the payroll module in the accounting software, or a payroll provider that provides an import into the software, record payroll payments promptly. Keep employee address information updated. Trends in overtime and payroll costs will be easy to see when this information is up to date. When quarterly and year end reports are due, information is ready for submission.
If the items above are already complete, most accounting software makes this step simple. Bank reconciliations help the business identify:
- Old outstanding checks that should be voided or reissued.
- Missing deposits, which could indicate poor cash handling patterns or internal fraud.
- Cash flow challenges that need to be addressed.
- Opportunities for investment of excess cash in the bank.
Bank reconciliations should be performed by someone other than the person responsible for making deposits and payments to protect both business assets, and the staff in these positions.
Financial Statement Review
Once the other steps are done, reviewing the financial statements each month is like taking the pulse of your business. You can identify areas for expense reduction before they get out of control. You can see potential sales, investment, or growth opportunities in a timely fashion and act promptly to take advantage. Financial statements that compare the current year to the prior year’s activity can show trends and comparisons that help with short- and long-term planning.
In conclusion, as Brianna Wiest said in 101 Essays That Will Change the Way You Think, “Everything is hard, but you choose your hard.” Which hard do you want? The hard of keeping up on the accounting tasks, or the hard of doing all the accounting tasks at the end of a year? The hard of capitalizing on valuable business opportunities because you had the knowledge and information to capitalize on them, or the hard of missing them?