As the year winds down and the holidays approach, it’s easy for small business owners to get caught up in the festive spirit and put financial tasks on the back burner. However, taking the time to do a through year end wrap up to organize and review your business’s finances at the end of the year is crucial for a smooth transition into the new year. This process not only simplifies tax preparation but also provides valuable insights into your business’s performance and sets the stage for future success. A study by the Small Business Administration found that businesses that maintain organized financial records have a significantly higher survival rate than those that don’t.
At NorthStar Bookkeeping, we understand the importance of a smooth year-end financial process. We know that the end of the year can be a hectic time for small business owners, but it’s also an opportunity to take stock of your financial situation and set yourself up for success in the new year.
“Year-end isn’t just about taxes; it’s about taking stock of your financial journey and plotting a course for continued success,” said co-owner, Heather Kirstein.
Your End-of-Year Financial To-Do List
Focus on these actions as 2025 comes to a close:
Reconcile Your Accounts: Match your bank and credit card statements with your internal records. This process helps identify any discrepancies or errors, ensuring that your financial data is accurate and up-to-date. Think of it as tying up loose ends for a clean start to the new year.
Review Your Income and Expenses: Take a close look at your income and expense reports. Analyze your revenue streams to understand where your money is coming from and identify areas where you can cut costs. Don’t forget to celebrate your financial wins – acknowledging your achievements is a great motivator! This review provides valuable insights into your business’s overall performance and helps you make informed decisions for the future.
Categorize and Organize Transactions: Assign each transaction to a specific category, like “office supplies” or “marketing. Ensure all your transactions are correctly categorized and organized. This not only simplifies tax preparation but also provides valuable data for analyzing your business’s financial health. Proper categorization allows you to track spending patterns, identify potential areas for improvement, and make informed decisions about your business’s finances.
Prepare and Review Financial Statements: Generate key financial statements, including your income statement, balance sheet, and cash flow statement. These reports offer a comprehensive overview of your business’s financial performance and provide valuable insights into its overall health.
Track and Reconcile Sales Tax: If your business collects sales tax, ensure you’ve accurately tracked and reconciled your sales tax liabilities throughout the year. This will make the filing process smoother and help you avoid penalties.
Manage Inventory: If your business deals with inventory, conduct a year-end inventory count to ensure your records are accurate. This helps you identify discrepancies, manage stock levels effectively, and prepare for the new year.
Review and Update Your Budget: Review your budget for the past year, analyze where you overspent or underspent, and make adjustments for the upcoming year. This helps you stay on track with your financial goals and ensures that you’re allocating resources effectively.
Plan for Tax Season: Gather all the necessary documents and information for tax preparation, including income statements, expense reports, and relevant tax forms. Being prepared will make the tax filing process less stressful and help you avoid penalties.
Back Up Your Data: Protect your valuable financial information from accidental loss by backing up your data regularly. This is a crucial step that many business owners overlook, but it can save you a lot of trouble in the event of a computer crash or other unforeseen circumstances. In California you must keep financial records for a minimum of five years.
Celebrate Your Successes: Take a moment to celebrate your business’s accomplishments and financial milestones throughout the year. Recognizing your achievements can boost morale and motivate you for continued success in the new year.
Beyond the Checklist: Strategic Financial Momentum
Year-end isn’t just about closing the books; it’s your most valuable window for strategic planning. To set yourself up for total financial success—both for your business and your family—consider these proactive, long-term moves.
1. Maximize Tax-Advantaged Contributions (Retirement & Education)
One of the most effective ways to lower your business’s current taxable income while securing your future is to maximize contributions to tax-advantaged accounts.
- Retirement Contributions: If you have a self-employed plan (like a SEP IRA or Solo 401(k)), now is the time to review your maximum contribution limits. By leveraging your status as a small business owner, you can significantly boost your retirement savings and potentially realize a large tax deduction.
- Education Savings: Review your 529 accounts (if applicable). Contributions to these tax-advantaged education savings plans may qualify for a state-level tax deduction, helping you meet your funding targets for tuition and expenses or even private secondary school expenses.
2. Employee Benefits and Rewards Optimization
For businesses with employees, the year-end is the ideal time to review your total compensation package. Optimizing these expenses helps control costs and boosts employee retention.
- Review Plan Usage and Costs: Analyze the cost-effectiveness of your employer-sponsored retirement plan (like a 401(k)) and your health insurance offerings. Did employees take full advantage of the employer matching contributions?
- Plan for Open Enrollment: Prepare for the upcoming open enrollment period by reviewing employee utilization of benefits like Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs). This data helps you determine if you should adjust offerings to better meet employee needs and control your overall benefits budget for the new year.
3. Optimize Year-End Tax Moves
Don’t wait until April to think about taxes. Proactive year-end financial decisions can lead to significant savings and better tax planning and optimization.
- Accelerate Expenses, Defer Income: Work with a tax professional to see if you can strategically pay for expenses (like supplies or marketing) before December 31st to claim the tax deductions in the current year. Ensure all records for major deductible expenses, such as mortgage interest or property taxes, are organized.
- Vendor and 1099 Preparation: Go through all payments made to independent contractors (non-employees). Ensure you have the necessary documentation, like a W-9 form, for everyone who meets the threshold for a 1099. Getting this squared away now means a stress-free January.
4. Stress-Test Your Financial Safety Net
Your business and personal emergency fund act as a critical financial safety net against unexpected expenses.
- Review the Fund Target: Ensure your business cash reserves cover at least 3-6 months of operating costs and living expenses. If you had to dip into your fund this year, make a plan to replenish it before year-end, utilizing short term cash storage options.
- Update Insurance and Risk: Use the end of the year to conduct a comprehensive insurance review. Have you had a major life event? Does your liability or health insurance coverage still provide adequate protection? This aligns with your long-term strategy and risk management.
5. Estate and Beneficiary Planning Check-Up
For small business owners, your personal estate planning and business continuity are often intertwined.
- Review Beneficiary Designations: Check the beneficiary designations on all your financial accounts (401(k)s, IRAs, life insurance policies). These designations override your will, so they must be current, especially if you’ve had a change in circumstances.
- Update Documents: Ensure all your core estate planning documents—including your will and powers of attorney—reflect your current wishes for both your personal assets and the succession plan for your business.
Partnering with NorthStar for End-of-Year Financial Success
At NorthStar Bookkeeping, we understand that end-of-year financial tasks can feel overwhelming. That’s why we offer a range of services to help small businesses navigate this critical period. Our team of experts can assist you with every step of your end-of-year checklist, ensuring accuracy, efficiency, and compliance.
From reconciling accounts and categorizing transactions to preparing financial statements and managing sales tax, we’ve got you covered. We can also help you review and update your budget, plan for tax season, and back up your data securely.
“By hiring a bookkeeping firm, small business owners can free themselves from the burden of year-end financial tasks and focus on what they do best – running their businesses,” said Paul Yee, co-owner.
Ready to conquer your year-end financials and set your business up for success in the new year? Contact us today to set up a consultation to discuss how we can help you achieve end-of-year financial success.
Ready to conquer your year-end financials and set your business up for success in the new year?
Contact us today to set up a consultation to discuss how we can help you achieve end-of-year financial success.