Audit Readiness

Get Your Small Business Ready for the New Year with a Year-End Checklist

The end of the year and the beginning of a new one is when many people reflect on the previous year, and make resolutions to make things better for the new year. While those resolutions don’t typically include going to the gym more often or “No Drink January,” it’s during this time that critical decisions for the next 12 months are made.

For small business owners, carving out the time from your already busy schedule to button up the last year and plan for the next may feel impossible, but it’s crucial for achieving your business goals. To help you out, we put together this list of best practices for year-end and the new year so you can start with a bang!

Why Should Small Businesses Perform a Year-End Check-In?

Looking back on the previous year — even if it’s a crazy, upside-down year like 2020 was — is crucial if you want to keep your business moving forward. Besides getting your year-end financial reporting in order, taking the time to evaluate the previous year helps you prepare and plan for the future. This year-end checklist will help you tie up all the loose ends so you can start the new year with a bang. 

Small Business Checklist: End of 2020

1. Close the books. Has your bookkeeper recorded all the transactions for the year? Reconciling all your bank statements and credit card statements is one of the best ways to ensure that you’ve got everything recorded. You may need to contact your accountant for additional year-end adjustments to depreciation, amortization, prepaids, and accruals. After all the adjustments have been made, a best practice is to lock down the previous year so inadvertent changes to your financial records can’t be made. 
2. Count your year-end inventory. If you sell things, you’ll need to do a year-end count of your physical inventory. This is also the perfect time to dispose of obsolete items in your inventory and to evaluate your pricing. If you don’t have inventory, it’s also a good idea to do a year-end check of your fixed assets. Make sure that you can account for  everything on your depreciation schedule. 
3. Scrutinize your numbers. Once you have your books closed, gather your year-end financial reports. You’ll need your balance sheet, income statement (also known as a profit and loss statement), and statement of cash flows. The end of the year is the perfect time to compare these to your results from the previous year, and see if anything looks strange. 

If your accounts receivables jumped compared to last year, maybe you need to write off some of them. An increase to accounts payable could be a sign of impending cash flow problems, or a reminder of overlooked bills. On the income statement side, take a look at your business expenses. If any seem abnormally high or low, that might mean that something got coded wrong. It might also be a sign of fraud.  

4. Check where your cash is going. Most accounting software can create a statement of cash flows that breaks your cash inflows and outflows into three categories: 

• Operating: cash coming in and going out for your revenue and expenses
• Investing: cash flows for any assets bought and sold 
• Financing: loan proceeds and repayments of those loans

Your statement of cash flows will give you a broad idea of where your cash is going, but you may want to drill down deeper into some of your revenue and expense categories. Consider whether your expenses are giving you the return on investment that you expect.

5. Check on how you did on last year’s goals. The coronavirus pandemic threw everyone out of whack, so you may have missed your goals by a long shot. But don’t be too quick to blame COVID-19 for any problems you see. Dig in deeper to see if that was really the problem. It may be that you need a change to your business model or to the mix of goods and services you sell. 
6. Take care of your year-end filings. Are your payroll tax reports and payments up to date? Do you need to file 1099s with the IRS for any of your vendors and contractors or for your landlord? Besides your tax filings, what about business registrations? Are those up to date? Do you need to renew your local business license? Are you registered in all the states you do business in? 
7. Gather tax documents. Your tax accountant will need your financial statements and perhaps even access to your books to prepare your income tax return. Providing your accountant with read-only access to your accounting system lets them pull the reports as they need them. Otherwise, you may spend hours on the phone or in endless email chains as you try to get them the information they want. Fortunately, most accounting software, including QuickBooks, Xero, and Sage, make it easy to let your accountant see your records. 

If you made big purchases like cars, furniture, machinery, or new computers, or made improvements to your workplace, your accountant will want to see the documentation for those expenditures. If you sold or donated any of your business assets, they’ll also need to see those documents. Your accountant may also want to see any schedules where you track work-in-progress plus any calculations for revenue recognition or lease arrangements. If you receive any 1099s, you’ll want to send those on as well. 

8. Back up your records. If you’re keeping everything on a server in your office, make sure you do a complete backup of your hard drive. Check with your CPA about how long you need to retain your documents. Put your 2020 records somewhere safe.

Closing your books and gathering your financials for 2020 makes business planning for the new year easier. The steps in this end-of-year checklist are also essential for audit readiness if your business needs an audit. 

Small Business Checklist: Start of 2021

1. Study trends for 2021. Read up on industry, regulatory, and economic trends and forecasts for 2021. Is there buzz about new technology that might impact your business? Are you prepared for new regulations that take effect? Are the economic forecasts for the country and for your region favorable or frightening?
2. Update your goals for the current year. The COVID-19 pandemic upended many small businesses. Some survived by making big pivots in their business model. What does your research into trends for the upcoming year say about your goals? How will the continuing pandemic impact your business? What worked last year, and what will you change for this year? How do those plans fit with the North Star for your business? 
3. Translate your goals into a plan. Set milestones for the year, each quarter, and each month. Are those achievable, or do you need to adjust your goals? Be sure to put reminders in your calendar to monitor those milestones throughout the year and adjust your plans as needed. Otherwise, it’s all too easy to make the mistake of filing your plan in a drawer and never looking at it again.. 
4. Check on your resources. To reach those milestones, will you need additional resources in terms of equipment, headcount, or funding? Start planning ahead for future business needs because getting those in place may take some time. Consider performing a cash flow projection to ensure that you’ll have cash on hand when you need it. 
5. Review your marketing strategy. Without marketing, nothing happens. What did you do last year that worked? What didn’t work? Take some time to think about who your ideal customers are, and what they need from you. Does your website need an update? Is it easy to navigate and use? Is it easy for customers to find what they want?
6. Assess your back office operations. Do you need to upgrade your accounting software or outsource your bookkeeping or other back office operations? Are you taking full advantage of the automations available? Do you need to hire more people for administrative tasks? 
7. Check in with your people. Last year was tough for everyone. How is your team  doing? Do they need extra support to do their jobs? Maybe they need additional training or a change in job duties. Consider reviewing your policies for time off, flexible hours, remote work, and compensation. How can you help your people achieve their long-term career goals? 
8. Fine-tune your systems and processes. Are there places where you can simplify processes without adding tech, or are there areas where tech tools could help? The best practice is to see what your people need and what their pain points are before you invest in a fancy new tech tool. 
9. Get your whole team on board. You’ll have greater success if everyone knows where they’re headed. Plan out regular update meetings to keep everyone on the same page, and commit to frequent and transparent communication.  

Taking the time to reflect on last year and plan for the upcoming year may feel like an unnecessary indulgence, particularly when your to-do list never gets any shorter. But as Benjamin Franklin said, “If you fail to plan, you are planning to fail!” By following these steps, you’ll be giving yourself, your team, and your business the best start you can for a great new year. So go out and do it! 

Chris is FloQast's Co-founder and Chief Product Officer. A graduate of the Martin J. Whitman School of Management at Syracuse University, Chris spent nearly seven years in audit at Rothstein Kass before joining Mike Whitmire and Cullen Zandstra to launch FloQast. Chris lives in Los Angeles with his family.