Year-end is the time when most business owners want to relax and even go for a holiday. However, this is also the time when your business needs more attention, especially regarding accounting and year-end closing activities. Approaching it in the right way will not only help you close the current year on a good note, but it also sets you up to start the next year on the right foot.
The key year-end activities for small businesses include the closing of the financial books, performance assessments, business planning and compliance with legal requirements.
Small Business Guide – Year-End Checklist
In this article, we have discussed 7 key activities on our year-end checklist for small businesses. We hope that it will help you to complete the assessment and planning for the new year.
1. Get your financial records in order.
Whether you’re running a sole proprietorship shop with a full file of receipts that haven’t even been recorded in your books or a person who has access to a part-time bookkeeper, you have to ensure that all your key financial transactions are recorded before you can do anything else in a New Year. To make it simple, here are few key areas to consider:
- All sales and purchases invoices/ receipts are recorded in the book
- Expenses are accounted or accrued for product or services consumed but not yet paid
- Review that outstanding customers’ records are updated and current. Write off bad debt expenses where necessary.
- Review all outstanding supplier payment list and make sure good received but not yet invoice are all recorded.
- Reconcile all bank statements for any charges and to show true bank balance position.
You should have an updated list of invoices that are still unpaid. Start to follow up on the bills that are due. This will help with cash flow forecast and give you a clean start for the new year.
These activities will ensure that your financial statements presents true and fair view.
2. Prepare the financial statements for the year.
The most important step in your year-end closing activities should be to prepare the business financial statements as you begin the new year. Financial statements will assess your performance and position in the year ended. A completed financial statements for a small business usually composed of three key components:
Balance Sheet – a summary of the business financial situation at a particular point ( year-end). It shows all your business assets, liabilities and the owner’s equity position. The balance sheet shows the liquidity of your firm as well as the key sources of your funding.
Income Statement assesses the profitability of the business during the financial year. It compares the business revenues to expenses and the results is either a profit or loss.
Cash Flow Statement shows the inflows and outflows of cash in your business. Cash flow statement is generally prepared under three sub-headings:
- Cash flow from operating activities – The core activities of the business such as normal revenues and expenses during the year
- Cash flow from investing activities – It shows the fixed assets and investments purchased and sold during the year
- Cash flow from financial activities – Movement in sources of finance such as new loans borrowed and loan repayments during the year. It also includes any new owner cash injection
Cash flow statement is one of the most important elements business investors, and lenders like to analyze. It shows the real flow of cash by eliminating all accounting estimates including depreciation and accrual. It also reconciles the opening cash to closing cash position by showing the net increase or decrease in your business’s cash flow over the period.
3. Analyse the financial statement using common standards
Once you’ve prepared your balance sheet, income statement and cash flow statement, perform some basic ratio analysis to understand the results deeper. Basic ratios like current ratio, total debt ratio, efficiency ratio and profit margin tell a lot about the business performance and situation. Customer receivable analysis can show the customer’s bills and the number of days the bill have been outstanding.
4. Evaluate your results against the last year goals.
Now that you know your results, it’s time to see if you have performed well; at least compared to the plan. You can perform the following comparisons:
- Compare the actual results to the annual budget of the year under review. Of course, this assumed that you had prepared a business budget for the year. If you don’t, then start it this year, because the budget is a good control tool for any business.
- Compare the actual results to the actual results of the prior year. This reveals the decline or growth in the ; Result numbers like sales, profit, cost, etc.
- Compare the actual results to the industry average or a competitor – (NB: It can be difficult to get a business comparator information in the Gambia)
The results of the comparison should reveal your last year achievements. However, you should be able to answer some questions such as how you met or didn’t meet the budget? Make some notes toward these questions as the answers could be helpful when preparing your new year business budget or discussing with other stakeholders like bankers or employees.
If you have some employees, it is also important to request for their general feedback. Their candid feedback and opinion could help you to know the areas that need some improvement. For example customer service, employee motivations, new product development, public awareness, business social responsibilities, etc.
5. Prepare your new year budget ( Plan).
With information on your last year financial performance and feedbacks, you should be prepared to set your new year goals and turn them into a budget. A good business goal should be SMART meaning Specific, Measurable, Attainable, Result focused and Time-bound. For example, your business goal could be:
- an increase of 2017 sales by 15 percent compared to last year
- 20% increase in some active customers etc.
- Post D100,000 profit by December 2017 etc.
For every major goal, it is important to prepare an action plan. The action plan is the summary of key steps that must be taken to achieve a specific goal. For example, if your goal is to increase sales by 20%, the related action plan could be new product offering, new outlets, online shop or new strategic alliances.
Depending on the size of your business, employee engagement in business goal setting can positively impact their commitments to achieve these goals.
Start implementing your action plans in the new year.
All the planning in the world will not help you achieve your goals. You must take action. This will set the wheels in motion and create the necessary momentum you needed. Do not forget to learn from your last year mistakes and successes.
The primary reason for failure is that people do not develop new plans to replace those plans that didn’t work.” (Napoleon Hill)
6. Assess your employees and consider giving bonuses
The new year is the perfect time to evaluate the performance of your workforce. This will discuss and document employees areas of achievement, shortfall and need for improvement. It does not matter if you have 5 or lesser employees, assessing employee performance can gather very important feedback for yourself and the company.
If you recorded some profit, then consider to give them some performance bonus. This will give everyone a sense of accomplishment and boost them to be excited about the new year ahead.
New year with something is always a good beginning for employees
7. Get your statutory documents prepared.
Compliance with the regulatory requirement is one activity which every business owner should take seriously. You have to comply with the laws and regulations of the country.Using Gambia as an example, you should generally remember the following legal requirements:
- Usual monthly tax returns (VAT, Payroll, Pension funds etc) – if you are VAT registered
- Annual income tax return
- Renewal of business registration and permits
- Renew car licenses, insurance papers and all contracts or permits that expire at year-end.
NB: You may require the service of an accountant or lawyer to perform some of these tasks, but with little more learning you can perform some of these by yourself.
Planning is an essential tool for managing a business. Hopefully, this year-end checklist will help many small business owners or consultants.
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