top of page
Business Meeting
TCV Insights

The Books are Closed for 2023 - Really?


By Dave Costello, MBA, TCV Growth Partner-


So, your books are closed for 2023 and you’re onto 2024. It’s early February, and I like the attitude, but let me ask a couple of questions.



As part of your closing did you:




  1. Reconcile all your bank accounts?

  2. Reconcile your subsidiary ledgers for accounts receivable, accounts payable, inventory, prepaid assets or other sub-ledgers to your general ledger?

  3. Review account transactions for major accounts for reasonableness of the trend of the activity?

  4. Calculate and record your depreciation entries?

  5. Remove any fixed asset items you no longer HAVE from your fixed asset records?

  6. Write off any un-collectible accounts receivable?

  7. Review your estimated tax payments to make sure your accounts properly reflect that activity?


Likely you have already performed these tasks but let me expand a little on some of them so as to be more easily understood.


Reconciling bank accounts identifies any transactions recorded by your bank but not in your general ledger, and vice versa. You should make sure that all transactions are properly recorded in your general ledger so that your financial statements properly reflect all the transactions that hit your bank account. A couple of minor items not recorded is one thing, but if there are significant transactions not recorded there is a question about the accuracy of your statements, and also about your accounting process that missed recording these transactions.


If your subsidiary ledgers are integrated into and with your general ledger then there are probably no differences between your sub-ledgers and your general ledger. However, it does happen sometimes even with integrated systems. Make sure you look to find out. If your systems are supposed to be integrated but they disagree then something is hung up or got out of whack or wasn’t entered correctly in the subsystem. If your sub-ledgers are not integrated with your general ledger then your accounting team has to make manual entries in the general ledger to record activity in the sub-ledger. Take a look to make sure nothing was missed in your accounting process to record these entries.


I’m a super trend review guy because I think this can identify transactions that occur and escape review prior to being recorded. If you look back at a significant account like rent or utilities over the last six months and see $2,000 in December, $2,000 in November, $6,000 in October, $2,000 in September, $2,000 in August, and $2,000 in July, then you know something happened in October that you need to go look at! It could be an expense that was recorded in the incorrect account, but it could be something much different. You want to make sure you know what it is and that it is properly recorded.


Some companies have their accounting firm maintain the fixed asset records and that’s OK. If you are in that group I recommend you record an estimate of depreciation so that your income statement has an estimate of expense included. You don’t want to think you made $500,000 before taxes when in reality you only made $200,000 because the P&L didn’t reflect $300,000 of depreciation.  You will need to true up the estimate of depreciation once your accountants get the final number for you.

 

Also, in your fixed asset listings, do a review to make sure any item listed that you no longer have in your possession is removed.  If you have it and use it, even if its fully depreciated, it belongs on your fixed asset list.  Maryland has a personal property tax filing that identifies the classes of your fixed assets and you pay taxes on them.  You don’t want to pay personal property taxes on items you don’t have any more, so get them off the list.

 

While I’m not a tax guy, I think this is correct, but check with your tax accountant to make sure.  If you are a cash basis taxpayer, you don’t have to worry about writing off accounts receivable since you only pay taxes on revenues you actually receive.  However, if you are an accrual basis taxpayer you only get a deduction for bad debts when you write them off.  Make sure you don’t pay taxes on receivables you likely will never receive.

 

No one likes to pay taxes but it’s required under our current tax law.  Your tax accountant probably gave you a schedule of estimated tax payments to make during 2023 based on the tax obligation you had for 2022.  First, make sure you paid your estimates on time and second, recorded them properly as prepaid taxes (or reduction of the tax liability if you record your own tax provision).  The IRS can assess penalties and interest for not making estimated tax payments on time or in the proper amounts under the tax code.

 

Pretty easy, huh?  If you need help with any of the above reach out to me.  My email is below.

 

What to do now?  Well, it’s onto 2024!  Here’s a couple thoughts for your consideration.

 

Hopefully your 2024 budget is finished, and you have uploaded it into your accounting system.  This makes it easier to prepare monthly or quarterly budget to actual results comparison reports for management review.  Remember, as we’ve talked previously, the earlier you see something that goes sideways to the budget the earlier you can address it!  Make sure you do this review on a timely basis.

 

Suppose your budget reflects 20% growth in sales for 2024.  How are you going to do that?  You can’t just budget it and HOPE it happens.  Hope is not a strategy.  Make sure you have an action plan for your sales team to follow that will give you a much better shot at achieving that revenue growth!

 

Your budgeted revenue growth may not just need the support of the sales team.  You need to assess your operations to determine if the increased sales plan needs more people in operations as well.  If you are selling the “time” of your staff as typical in legal or consulting businesses, you may need to add professionals to achieve that revenue growth.  If you manufacture a product to sell you may need more staff in manufacturing to make more products to sell that will support sales growth.  Either way, make sure you know what is needed!

 

There are many, many other planning and operating concepts that work together to make a business successful and enable the business to grow.  If you need help my partners and I at TCV Growth Partners stand ready to assist you.  Our mission is to help companies grow and we understand the entrepreneur may need help in certain areas that are outside of their expertise.  That’s where we come in.  Check out our website at www.tcv-growth.partners

 


18 views

Recent Posts

See All
bottom of page