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Year End is Approaching - What to do Now?


By Dave Costello, TCV Growth Partner:

 

Yes, year end is approaching. But it’s the end of the year, not the end of the world, so relax. If necessary, TCV Growth Partners can provide an experienced financial executive as needed to help.


The term “Year End” sounds ominous but all it means is that it’s the end of an accounting period, typically the end of the 12 month period for which companies file their tax returns.


But, yes, there are some things you can do to get BETTER prepared for year end. And don’t wait until December 24th to start. Here’s my list.


1. Meet with your CPA or accounting firm that does your tax work. Many small to medium sized companies file tax returns on a cash basis and are pass through entities, meaning the results of the company pass through to the tax return of the owner or entrepreneur. Your CPA may have some ideas for minimizing taxes by paying certain expenses or invoices prior to December 31st.


2. Make sure you know what your cash balance is and incorporate that into any plan to pay expenses or invoices prior to December 31st. You certainly don’t want to be overdrawn with the bank if you follow this strategy.


3. If you use an outsourced bookkeeping firm make sure they are current in posting your company’s transactions. You don’t want to look at a P&L prior to year end thinking that is pretty much where you will end up only to find out on January 31st that your outsourced bookkeeping firm didn’t post transactions from the last half of December until January 15th.


4. Make sure all suspense accounts are cleared out and items that were put into suspense are reviewed and resolved before year end. This activity will make the year end cut-off more accurate and will help your CPA. Items that are posted to suspense accounts because you or your bookkeeping firm don’t initially know how to account for them should not linger in suspense. Develop a process for continually reviewing and resolving suspense items within a few days of initially posting them to suspense.


5. Review and resolve bank account reconciling items as much as possible. Sometimes things that reside in a bank reconciliation are out of your control but sometimes you can take action to clear them. For example, if you have a large outstanding check that is six months old or older and it has not cleared contact the payee and determine what may have happened. Its possible the check was lost and could be reissued to the payee. If you do this make sure you request a stop payment from your bank on that specific check or remove it from your positive pay list. Similarly, if there is a deposit in transit from 3 months ago something is very wrong, and you need to find out what happened right away.


6. Review your vendor list and make sure you have accurate W-9s from any of them that you need to send a 1099. Your accountant can help you determine who is required to receive a 1099 from you, but there’s no harm in sending a 1099 to all vendors you have paid. The IRS can impose fines for not sending a 1099 if you were supposed to.


7. Follow up on any aged or delinquent outstanding invoices you sent to clients.You want to make sure they received the invoice, were happy with the product or service, and are planning to pay it soon.If you get the payment in before the end of the year it will increase your cash and will represent additional income for the year if you are on a cash basis for tax purposes.That’s not a bad problem to have.Alternatively, if you find the customer is out of business or for whatever reason will not pay, then you should write off the receivable as a bad debt before year end and you may get a tax deduction.


8. If your company maintains physical inventory of goods for sale or to be used in production you should schedule a physical inventory count before year end and reconcile to your general ledger inventory balance. Make adjustments as necessary. Your CPA can help in this if you are unsure.


9. Do a general review of your balance sheet account activity for significant accounts to ensure transactions look accurate and they belong where they are recorded. You can estimate depreciation prior to the end of the year and record an estimate if your CPA or other outside firm will calculate depreciation sometime in February or March when they are working on the tax return itself. This would be a useful estimate if its reasonable to help determine your estimated tax deposits due January 15th.


10. Your fourth quarter estimated tax payments for federal and state income taxes are due January 15th. You will want to have a pretty good idea of how much you will need to deposit for your estimated taxes so work on the items above to help ensure you have an accurate and complete a picture of your company’s results for the year. Work with your CPA to pull a P&L in early January for the prior year to review for odd looking balances or transactions and then use that information to estimate your tax deposits due.


See, that isn’t too bad. A pretty reasonable process when you think about it. And you have help available in your outsourced bookkeeping firm, your CPA and from TCV Growth Partners if needed. If you would feel more comfortable about year end by having a conversation with me to see how TCV Growth Partners (www.techcomventures.com) could help, send an email to dave@techcomventures.com and I’ll set up a time for us to talk. In the meantime, Happy Holidays!

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