Closing the Books

Have you been asking yourself where 2024 went?  In this blog, we’ll talk about year end record keeping and some easy steps to help you close out the year.

It’s time to close out the books!

But what does it mean: “Close the books?” As a small business owner, “The Books” are a record of your revenue, expense and income summary reports. We encourage you to produce reports once a month (P/L and Balance Sheet) – it really helps you know where you are financially. At the end of the year, business owners can close their books by zeroing out their income and expense accounts and moving the numbers to the balance sheet. With some accounting platforms this happens automatically based on the calendar year/fiscal year settings.

It’s all about moving numbers:

Accounting software has become a necessity for any size small business, so we would strongly encourage you to get a program that fits your business needs. While we can’t recommend one program over another, we can tell you several places to look to find accounting software that may meet your needs.  Here are several to consider:

• Quickbook Desktop: This seems to be phasing out for many small business owners due to price and updates.  While many have migrated to QuickBooks Online – if you are manufacturing or a lot of inventory needs you would find QBO limiting. .
• QuickBooks Online – See their video and article on closing the books
• Freshbooks: Great for a service-based business.
• Wave Accounting – low fee
• Xero – several features comparable to QBO
• Excel Bookkeeping: If you are already familiar with Excel products, this would be a simple transition.

The best thing about accounting software is with a few simple steps, the program will close your books for you, create your balance sheet, income and loss statements, and prepare documents that you’ll need for taxes.  Suggest you get end of year entries from your CPA before you do the year end closing. Types of accounts to watch for? Suggest reconciling your notes payable and confirm you recorded the principal/interest payments; your CPA likely has depreciation to record; update your inventory; review your accounts, write off bad debts.  These are just to name a few, contact your CPA for feedback; it is best practice to have your books match what you file for your income tax return.

Is closing out the books absolutely necessary?

It really is a necessary part of business to close out the books for the year and keep records for yourself and for your tax return. You will need the information to file taxes and it will make April and tax season far less complicated and intimidating. Depending on the accounting software tool you use, it may also improve the application efficiency and data storage. While the software solutions are great for allowing a user to edit a record, changing transactions after you filed your taxes can cause confusion if you books and tax returns don’t line up.

How do I close the books?

There are a few simple steps to closing your books that are both easy to do and rewarding when finished. You’ll know exactly how profitable you were, if you can afford employee bonuses, and if you have what you need for tax season.  Here are a few steps for the closing of your books:

• Send invoices and invoice reminders.
• Collect past-due invoices and decide which invoices you may need to write off or consider a loss.
• Gather and analyze financial data:
  • Monthly balance sheet
    • Assets, Liabilities, Equity
  • Profit and loss – Income Statement
    • Revenue, Tax Expense, Operating costs, Cost of goods sold, Depreciation, Net income or loss (EBITA)
  • Cash Flow statement
• Complete an inventory and update your accounting records
• Organize and log business receipts (don’t just put them in a shoe box, to be sorted by your CPA)
• Complete bank and credit card reconciliations, in a world with accounting solutions using bank downloads – you still should reconcile your accounts to confirm accuracy of your records!
• Pay outstanding invoices
• Back-up your information and run hard copies of essential documents.  It’s good to have your insurance information, formation documents, tax documents in a hard copy or saved cloud based in a secure place. If you were faced with business contingency planning, what documents or process’ would you need to access for operations?
• Compile tax documents:
  • Financial statements
  • Bank and credit card statements
  • Petty cash records
  • Invoices and receipts
  • Sales records
  • Payroll records
  • Loan information

Tips to make year-end close easier:

There’s no reason to dread year-end close!  There are several on-line resources that provide printable checklists of what to do and how to complete a year end close for small business. Here are a few more tips:

• Work on your year-end close just one hour a day (complete it in small pieces)
• Talk to your CPA about what is needed
• Get help – delegate filing of receipts and tax records
• Make inventory fun – have an after-hours counting party.
• Reward yourself when you are finished: Think vacations, time off, or that chocolate bar you’ve been hiding in your desk!

Contact your SBDC for support and resources as you navigate the changes.  Conversations with an advisor and an outside point of view builds your strategy for new goals.

For additional information on preparing for year-end for small businesses, please contact us at the Trinity Valley Small Business Development Center – SBDC – TVCC – Serving Henderson, Anderson, Van Zandt, Rains, and Kaufman Counties.

 

Trinity Valley SBDC is a partnership program with the U.S. Small Business Administration, the State of Texas, and Trinity Valley Community College. Advising services are offered by Trinity Valley SBDC without regard to race, color, age, national origin, religion, sex, or disability. Special provisions will be made for limited English-speaking individuals and those with disabilities. Those interested may contact us at 903-675-7403.

The North Texas Small Business Development Center Network is funded in part through a Cooperative Agreement with the U.S. Small Business Administration and Dallas College. The North Texas SBDC is an Accredited Member of the Association of Small Business Development Centers. SBDCs are supported by the U.S. Small Business Administration and extended to the public on a non-discriminatory basis. The SBA cannot endorse any products, opinions or services of any external parties or services. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance. Language assistance services are available for limited English proficient individuals.

All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S. Small Business Administration or other funding partners.