How quickly we go from summer to fall and then winter, the cooler season sneaking up on us to mark the end of the year. For-profit and nonprofit organizations alike often dread this time–December marks an official boundary for beginning to close out financial business for the year, moving quickly into tax time.
If this is a source of stress for you, you are certainly not alone. But you should know that it doesn’t have to be a continual pain point. As we inch closer to the holidays, keep in mind these six simple tips for closing your books and starting the new year off right.
Make sure everything in your books is current through the end of the year. While you should periodically ensure everything is updated throughout the year, this is especially important when the new year begins. This includes things like unpaid invoices, which may have gone unnoticed. Update your fixed assets list, and make sure all of your books are up-to-date.
Divide and Conquer
For individuals and businesses, it can be difficult to categorize your various expenses. As part of your end-of-year process, make sure you’re dividing everything up between personal and business expenses. Listing something as a business expense that is a personal expense, even on accident, is a big no-no with the IRS, so be diligent in your categorization. Better yet, focus on keeping them separate throughout the year.
Though you’ve already made sure you aren’t owed money, you may also need to make sure you’re all paid up too. Ensure all bills from vendors are current, and all contractors are paid to save yourself a headache down the road.
Closing your books isn’t possible without reconciling all of your accounts, so get this done early and, preferably, often. Your income and expenses have been recorded, but do they match up with bank and credit card statements? If not, you’ll need to do some investigating to figure out what is going on. Doing this monthly will save you a lot of time, but, at a minimum, you should reconcile at the end of the year.
If it looks like it’s going to become a particularly hairy task, you might even want to consider bringing in an expert – you don’t want to gamble with your finances going into the next year.
Closing your books is a lot more joyous if you know they’re completely accurate, so do your doublechecking now. Look over payroll taxes to make sure that payroll tax liabilities and quarterly payroll returns match and verify employee information (including contractors). Getting it right now will ensure a smoother process come tax time.
Interpret Your Data
Sure, you’re keeping track of this stuff because the IRS requires it, but you may as well glean some useful information from all your hard work. Run reports for things like profit and loss, cash flow, ROI from various fundraising campaigns, etc. Not only will this help your accountant, but it will provide valuable business insights, no matter your industry. Finally, keep everything organized for easy access later on.
About the Author:
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa.