Winging it won't work. Keeping books up-to-date and planning ahead for tax filings is essential for good company growth.
An understaffed accounting department caused big trouble for the city of Spokane, Washington. During an audit of the city’s 2014 taxes, several errors surfaced, including revenue miscalculation, an overstatement of general fund expenses and inaccurate reports of debt changes.
While many of these mistakes were simple spreadsheet flubs -- a matter of figures placed in the wrong spots in the city’s financial statement -- the result was a multimillion-dollar miscalculation. Fortunately, the state auditor’s office identified these slips in time, but the lesson was clear.
Spokane now has a fully staffed accounting department and internal procedures to prevent future disasters. A large-scale issue like this should be a warning to small businesses: Avoid the kinds of errors that carry implications for your company’s reputation and bottom line by making a year-end accounting checklist your new best friend.
What to put on your year-end accounting to-do list
Here’s why the “winging it” approach to tax preparation doesn’t suit new companies: Not only does it threaten a potentially harmful financial fallout, it also damages company morale and paints you as disorganized.
Not having up-to-date books or a plan to file taxes -- correctly and on time -- may hinder growth. Plus, if your company reports payroll taxes or contractor 1099s, you may face costly penalties for not meeting requirements. That’s why establishing solid year-end procedures is so important.
And trust me: The earlier you do this, the better. It’s much easier to install an annual plan while the company is young and the tax requirements are relatively simple because filings get more complex as businesses grow.
No matter what industry you are in, including these items in your end-of-the-year rundown keeps your books in order and a CEO’s mind at ease:
1. Keep internal operations on point.
Now is a great time to double-check the internal controls you already have in place, and -- if necessary -- create fail-safe procedures. Some good reasons exist for creating and sticking to internal control operations, such as maintenance of accurate financial records, fraud prevention and early embezzlement detection.
The Association of Certified Fraud Examiners found in 2014 that internal deception results in businesses losing a median sum of $145,000 annually. Even worse, 22 percent of those cases posted revenue reductions of at least $1 million.
So, look honestly at your business. Does your plan contain holes that make you susceptible to errors? Ensuring that your procedures are in place and working smoothly can help you maintain a solid year-end close as your company grows.
2. Keep payroll compliance top of mind.
Get employees their W-2 forms no later than January 31, and include accrued bonuses or special gifts. This not only calms impatient workers, it also prevents major penalties. Don’t risk being charged with a federal violation, which can happen if the IRS proves you intentionally avoided filing to pay.
3. Collect accounts receivable.
Consider this: CB Insights discovered that up to 29 percent of startup failures owe to cash crises. Before the year is up, aim to close out all outstanding receivables.
That means collecting on those unpaid invoices and reissuing or voiding checks as needed. A strong push to collect as much as possible and clean up reconciliation issues will help you maintain better control over your company’s cash flow. Expediting payments -- before taxes are due -- will help.
Related: One Exec on Escaping Accounts Payable Hell
4. Mind the GAAP (generally accepted accounting principles).
Clean books are essential to satisfying both investors and acquiring companies. If your company’s financials are not already in line with accounting principles, they need to get there -- now.
Not sure whether you are running GAAP-compliant books? Speak with a professional as early as possible. This is another area that, if monitored, can save valuable time and money.
5. Send out 1099s.
Employees will claim income regardless of whether you provide them 1099s. You can save yourself some trouble by collecting W-9s along the way and sending out 1099s early. It’s much easier to take care of things early than to scramble at year-end.
Failure to send these documents out results in a $250 fine, so don’t delay: 1099s must go to recipients on or before January 31 and to the IRS on or before February 28 (or March 31 if you file electronically).
6. Plan for income tax.
Now is the time to identify tax needs and engage with a tax pro in order to minimize your payments and capture potential savings. To avoid nasty surprises and save your company serious money, invest time now.
The end of the tax year is still a little way off, and, yes, your plate is full. But you should not put these important tasks aside for later. You don’t want to be among the estimated 40 percent of small businesses that rack up $845 per year in penalties.
7. Ensure you have the green to go.
Twenty-nine percent of respondents in a CB Insights survey reported “running out of cash” as the second biggest reason for startup failure. Don’t get caught in January wondering if you have the money set aside for that first-quarter sales hire you wanted to make or the purchase of that new piece of equipment you’ve been eyeing since the summer.
Get with your stakeholders and compile a budget for the year. Involve investors and anybody else to make sure all your fiscal ducks are in a row.
8. Stop and smell the roses.
The sense of urgency that fuels your end-of-the-year push shouldn’t preclude you from looking back at the work you’ve done. Early-stage companies, especially, have much to do -- including filing their taxes -- and little time to do it.
Review the year’s performance and stack the results up against intended goals and milestones. Look at your figures as a barometer upon which to judge the coming year’s objectives.
For example, Google’s Objectives and Key Results method prioritizes the establishment of goals, making these benchmarks measurable, public and lofty, yet attainable. Making financial goals visual and tangible at year’s end can be a trusty guide for where you want to guide your business’s books during the ensuing 12 months.
All emerging companies want to grow, but too many don’t establish the procedures necessary to make growth happen. If you take action before the end of the year, you can tick these concerns off your checklist and be prepared when taxes come due.
Related: Time to Send out 1099s: What to Know
This kind of planning and organization will prevent compliance issues from coming back to haunt you. It will benefit your employees -- and your bottom line.
Read Article: https://www.entrepreneur.com/article/286807