The ultimate startup accounting year-end checklist
Guest blogger David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides early-stage companies with accounting, finance, tax, valuation, and corporate governance services and support. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best.
The most wonderful time is upon us: year-end. There are a number of accounting items you should be staying on top of in order to best manage your company finances and position your small business for greater success in the new year.
Your year-end thought process should take into consideration the following:
Make sure that you’re filing all of your forms and making payments. It’s important to make sure you’re in good shape to get your employees their W2 forms on time. Also take into account accrued bonuses or special gifts on the books that may not be paid until next year.
You want to be able to close out all outstanding receivables before year-end so do what you can to collect on unpaid bills. Improving your collection process and expediting payments will help you to maintain better control over your cash flow. For more tips on AR collections, read my previous post on 9 Steps to a Better Startup Debt Collection Process.
If your financials are not already GAAP compliant—that is, in line with generally accepted accounting principles—then now is the time to move in that direction. If seeking a funding round or selling your business is on the horizon, you’ll need clean books to satisfy investors and/or acquiring companies.
It’s best to stay on top of the 1099 process throughout the year. After all, employees are going to claim income whether you get them a 1099 or not, so you might as well save yourself the hassle and get it to them. You should collect W9s along the way, as you go. It’s easier that way rather than waiting until the end of the year to figure out who you need to file for and trying to chase them down before the year’s end. If you find yourself behind the eight ball in terms of 1099s, keep in mind the due dates for filing: 1099s to recipients on or before 1/31/2016 and to IRS on or before 2/28 (or 3/31 if you’re filing electronically).
Reconcile Transactions and Cash Checks
Reissue checks as needed and void as needed. You want to make sure that all of the transactions in your register are reconciled so that you have a clean tax return.
Income Tax Planning
Now’s the time to start identifying your tax needs, thinking about potential tax savings, and engaging with your tax professional who will help identify ways to minimize your taxes. Starting your estimates now will save you from unwelcome surprises come tax time. Also, make sure you are aware of the coming tax deadline changes for 2016.
End-of-the-year isn’t necessarily the best time for you to get a valuation. If it’s been less than 12 months since your last one and you haven’t had any events to trigger needing a new one, then you can take this off of your to do list. But keep in mind that a 409a valuation refresh is required annually. You’ll also need a valuation if you are trying to value the common stock of your company, planning to issue stock options, have raised a new round of funding, had a material event, or are looking to sell IP from your company to another.
Check to see that you have internal controls in place, and that they are working properly. Keep your eyes peeled for weak spots where the potential for fraud or errors runs high.
Examine your business processes to see if and where you can find any opportunities to cut expenses for savings in the new year.
Big Picture Thinking
As you reflect back over the past year, it’s nice to take a moment to dig yourself out from under the minutiae of running a business and think big picture. Refine your vision. Map out your next milestones. What have you been doing well? Where does your company need work? Is it time to pivot?
The end of the year is a great time to reflect, to informally audit your business, and to make plans for next year, which include financial forecasts and budgets. Checking off all of the items on this list will help you to start the new year with clean financials and a good reading on where your company is currently and where it’s heading.