ELIMINATE THE AGONY OF YEAR-END TAX PREPARATION
By Scott Applegate, COO, CapitalPlus Financial
As the old year ends and a new one begins, it is understandable to want to look forward to the future of your small business. However, it is important to first look backward to understand how the year financially impacted your company. For many, this can be an ominous proposition, but it can easily be an opportunity to learn and make your company more efficient. The key is to keep things as simple as possible.
Every month someone should be managing your bookkeeping to ensure your entries are up to date and accurate. This allows you to know how much you owe, what is outstanding and what your business is worth. This keeps you organized and stops you from being blindsided by a debt, which you forgot to pay. So given that, let’s first quickly break down the steps that are taken every month to ensure the financial success of your business.
1. Review your company’s transactions – reconcile your accounts.
a. Print out Income Statement and Balance sheet.b. Run reports to show your per month totals.
i. Accounts Receivable Aging report, Accounts Payable Aging report, Bank Account Statementsii. What stands out? Do you see any amounts that don’t seem to trend with other months? If you do, you will need to research the transactions.
2. Did you mistakenly record a transaction to the wrong account/category?
3. Do you need to make any adjusting entries for activities not recorded during the month? Did anything not make it on the books that should have been recorded? Do you have good records?
4. Finally – does everything balance? Remember ... Assets = Liabilities + Shareholders Equity -- if they don’t you have a problem!
With this fresh in our minds, let’s now turn to the issue at hand - the agony of compiling information and documents for your business taxes and closing your year-end books. The best way for keeping yourself from being overwhelmed by the seemingly endless amount of commas and figures is to consider the end of the year as simply another month of the year.
Let's put the monthly steps into year-end context:
- Your Balance Sheet is just a snapshot in time – your year end is just a snapshot of where you are at the end the year.
- The Income Statement is the best view into your bottom line and how you are doing as a company and answers the question - Are you making or losing money? The income statement also determines how much you owe in taxes.
- Understanding your prior year Income Statement allows more effective planning for taxes and growth for the new year.
Tax season does not have to be the tedious and stressful ordeal that it is portrayed to be. The key is to keep your records up to date and to reconcile each month so that you aren’t scrambling at the end of the year like a college student with a term paper due at 9 am. One solution would be to outsource both your monthly and year-end bookkeeping duties to a separate partner that can take the stress off your mind entirely, so you can continue to run and grow your business. This solution keeps you from going through the time-consuming hiring process and paying taxes and benefits on another employee. The bottom line: If you spend a little time each month with your bookkeeper or bookkeeping company, you will have a better idea of the financial health of your company, as well as a much less time consuming and stressful tax deadline.
Scott Applegate is the chief operating officer for CapitalPlus Financial, a financial services company specializing in helping construction companies with back office support services including bookkeeping, compliance and credit as well as their cash flow needs. You can get more information about CapitalPlus Financial at www.capitalplusfinancial.com or (865) 670-2345.