5 End-of-Year Tasks to Streamline Tax Prep
Well, 2016 is almost over and once the holidays end it is time to make sure your business is ready for the new year. Unfortunately that also means getting things together for your tax return. Fear not, tax prep can be simple if you go into it with a defined plan and task list to follow. Streamline your new year tax preparations by completing these simple but important end-of-year tasks.
Forecast Cash Flow
The days going into the new year are often some of the tightest, especially for small businesses that are still establishing themselves. Project your cash flow for the new year and break it down by quarters so that you can see what your first-quarter finances have in store. Follow these three quick steps:
- 1. Record your current cash balance.
- 2. Take out expected cash payments for the projected time period.
- 3. Add in expected cash receipts for the projected time period.
Projections are subject to change, but having a ballpark estimate lets you tentatively plan for purchase orders, new contracts and other commitments.
Review Profit and Loss
Check your estimated profit and loss statement from last year, and compare it against your current profit and loss statement. The actual data should be similar to the projected data, and you can refine your P&L calculation process going into the new year to see where you can improve your accuracy. Did your estimated sheet rely too heavily on short-term contracts that didn’t end up renewing, or did you have too many unpaid accounts age into uncollectible?
Go through your receipts file, and make sure your receipts are sorted by vendor and then by date so that you can easily access any information you need in the event of an audit.
You should also organize copies of invoices sent and paid by client and date. Some business owners prefer to keep old-school paper copies, but you can save space and time by scanning and keeping digital receipts instead. Automated small business invoicing solutions like Flint can help make this easier by automatically creating digital copies to store.
Follow Up on Aging Receivables
Go through your accounts receivable and see if there are any invoices you can collect on before the end of the year. A reminder email or call to a customer stating, “we are closing our books for the year and noticed you have an outstanding payment due” can be just the right nudge to collect. Then you can set aside any accounts that have aged out and are no longer collectible and review these accounts with your accountant, and determine whether you can send them to collections or write them off as a loss on your taxes. If you already have a system in place for following up on invoices past due, then you might have aged-out receivables already collected and recorded, which makes this step faster.
Balance Your Inventory
Check your physical inventory, and note items that need reordering, as well as items that aren’t moving. In some cases, you can write off unsold inventory for a tax deduction, so check with your accountant about which of your inventory qualifies, if any. Make it a habit to reorder big movers at tax time to help ensure that you aren’t overwhelmed with orders for out-of-stock, high-volume products. Removing poor sellers from your inventory makes more space for the items your customers actually want to buy and helps you recoup some of the loss through deductions.
Spending a few hours in January getting things ready can make things a lot easier when you prepare your taxes and if you use someone else to prepare your return, the organization will save them time and in the end your money. If you want to start the year off right, download Flint and use it to send invoices and collect credit card payments so everything is in one app and easily accessible in the merchant portal that is part of your Flint account.