Year-end is quickly approaching and while we all may be thinking about buying and wrapping gifts, it is also time to think about wrapping up the year. If you have been managing your accounting and bookkeeping for a while, you already have set practices and processes in place, as I do. Even so, every year there are a few things that, in retrospect, I would have done differently.
I am sharing my list in hopes that it also helps you have a smoother year-end wrap-up. This year, my list is grouped into two categories:
- Reports to run
- Documents to Review
Let’s dive in and look at the areas that can be easy to overlook but can have a significant impact on your year-end activities.
Reports to Run
Payroll Address Verification – Avoid the chaos in January by running a payroll report now to verify that you have correct addresses for all employees. Verifying this information now will make the process of sending out W2’s much smoother and will ensure that your employees get the information they need to do their taxes.
Vendor Report – Have you added new vendors in 2021? If so, verify that you have their W9s on file and that their EIN or Social Security Number in your accounting software.
1099 Report – You will need to provide a 1099 to all vendors that have been paid over $600 in 2021. Run a report to identify all vendors that fall into this category and review to make sure that you have captured everyone and that you have up-to-date information on file.
Documents to review
YTD P&L – Reviewing your year-to-date Profit & Loss statement is standard, but here are a couple of areas that may get overlooked:
- Budget variances – If your profits are lower than expected, now is the time to make changes as you head into the new year. Conversely, if your profits are higher than expected, now is the time to make larger purchases that you can record future depreciation and/or expense in the current year.
- Retirement contributions – Maximizing retirement contributions can help off-set some tax liability. Review where you are at with your tax accountant to see if you have put enough in an IRA, SEP IRA, or 401k or if you need to up your contributions.
Cashflow Statement – Ideally, you are analyzing your cash flow statements throughout the year to identify cash flow trends. At year end, I highly suggest you analyze cash flow by separating your cash flows into three specific activities:
- Cash flow from operating activities (revenue and expenses)
- Cash flow from investing activities (assets purchased and assets sold)
- Cash flow from financial activities (loans and repayments)
The reason behind separating your cash flow into these three categories is so that you have a clearer picture of where your revenue is coming from. Will you be able to continue this activity into the new year or was the cash tied to one-time transactions? Being able to better forecast cash flow activity will help you in establishing a solid budget for 2022.
By focusing on year-end preparation now, you can avoid the chaos of chasing information later. Be sure to work with your accountant/bookkeeper to review your numbers so that you can make the best decisions for you and your business as you move into 2022. Be sure to stay tuned for our next blog on Building a Better Budget in 2022.
If you have any questions about your financial reports or accounting processes, contact us at 505-850-3908 or email@example.com.