You Should Clean Up Your Books Before Year-End. Here’s How.
Cleaning up your books ensures accurate financial reporting, helps you maximize deductions and sets you up for a smoother tax filing process. It’s a task that’s best done throughout the year, but if you simply don’t have the time, you’ll want to prioritize getting it done before the year ends.
Well before the year ends.
The end of the year often sneaks up faster than business owners expect. Between holiday demands, employee schedules and final pushes to hit revenue goals, bookkeeping duties can easily get pushed aside. But waiting until tax season to sort out records can be costly, stressful and even damaging to your business.
That’s why business owners should at least start the process of cleaning up their books months before the year comes to an end. And to help, we’re providing a list of some of the most important to-dos for getting your financial house in order.
Reconcile Your Bank and Credit Card Statements
When you reconcile bank statements, you’re simply comparing your statement balances to your accounting record balances. This involves confirming that deposits, withdrawals and charges line up correctly — and if they don’t (let’s say you spot duplicate entries, missing transactions or incorrect transaction amounts), you can make the proper adjustments.
Why is this important? Reconciling bank statements ensures the accuracy of your accounting records, which in turn ensures that you can make more accurate financial projections, as well as file taxes with less risk of an audit. It can also help you sniff out fraudulent charges.
Ideally, you should be reconciling statements at least once a month, but if you’re not in the habit, it’s better to start now before year-end.
Editor’s note: You can reconcile other areas of your business’s finances, too, including accounts payable (for vendors), accounts receivable (for customers) and intercompany records.
Categorize Expenses Correctly
When you’re busy running your business, it’s easy to lump expenses into catch-all categories or postpone classifying them altogether. But come tax season, improperly categorized expenses can cost you valuable deductions — or worse, raise red flags with the IRS.
Go through your expense records now and make sure they’re in the right categories. Don’t group travel costs with office supplies. Meals with clients aren’t the same as staff lunches.
If you’re mixing personal and business expenses in the same account, this is the time to separate them. Clean categorization gives you a clearer financial picture and supports your tax filings.
Review Accounts Receivable and Outstanding Invoices
Outstanding invoices don’t just affect your cash flow — if they’re outstanding for long enough, they can also skew your year-end financials.
Review your accounts receivable and flag invoices that are past due. Reach out to clients before year’s end to collect payment. If necessary, write off bad debt so your books reflect a realistic financial position.
If you frequently struggle with late payments, ways to get invoices paid faster include setting clear payment terms or offering small discounts for early payments.
Check Accounts Payable and Upcoming Obligations
Just as you want to collect what’s owed to you, you also need to review what you owe others.
Go through your accounts payable to ensure all bills and obligations are properly recorded. This is an important part of managing year-end cash flow and will help you prevent surprises during tax season.
Also, if you’re considering large purchases or investments, talk with your accountant to determine whether it makes sense to pay before year-end to maximize tax deductions.
Take Stock of Assets and Inventory
For businesses that maintain inventory or own significant assets, year-end is a good time to take physical counts and verify records. Compare your inventory on hand with what’s in your system, and make adjustments for shrinkage, damage or outdated stock.
For assets such as vehicles, equipment and technology, confirm that your records reflect current values and depreciation. Accurate asset reporting helps ensure you take advantage of all eligible tax deductions while also preparing for financing needs or audits.
Update Payroll and Employee Records
Payroll errors cause significant headaches, especially when tax reporting is involved.
Take time to review employee records, contractor payments and benefits to ensure everything is accurate and up to date. Double-check W-2 and 1099 details, verify addresses, and confirm that year-to-date earnings are correctly reflected in your system.
Getting ahead of payroll issues before December ends will help you avoid costly corrections and ensures you’re ready to distribute tax forms early in the new year.
Organize Documentation for Tax Season
Messy records aren’t just inconvenient — they can lead to missed deductions or trigger IRS scrutiny.
Start organizing receipts, invoices and documentation for big-ticket items such as equipment, business travel and charitable contributions. A cloud-based system can help you digitize and store these documents for easy access.
The more organized your documentation, the smoother your tax filing process will be.
Want to Worry Less About Your Records?
A little effort now can save a lot of stress later. Cleaning up your books before year-end not only makes tax season easier but also gives you the financial clarity needed to make smarter business decisions in the new year.
And you don’t have to do it alone.
McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm that serves small and midsize businesses. Our experienced team can help you prepare for year-end by reconciling accounts, reviewing expenses and ensuring your books are squeaky clean.
Call us at 440.892.8900 or contact us online today to get started.
Tags: accounting, small business, small business accountant, small business accounting, small business finances | Posted in accounting, McManamon & Co.