Year End Checklist for
Small Business

1. Make sure your books are up to date and organized

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This may seem obvious, but the first step is to make sure that all transactions up to the year end date have been recorded. This can be a relatively simple point if you use your preferred bookkeeping software and have been entering your receipts, invoices, and payments consistently. If you are still storing your business receipts in a shoebox, this is a great time to rethink the way you organize business receipts to tidy up for the new year. Disorganized receipts can increase the risk of making errors on your business tax return and cause more issues in the future.

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If you haven’t been entering your receipts, invoices, or payments consistently, this is the time to get that done.

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2. Gather and analyze your key financial statements

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Financial statements play a crucial role in your company and provide an opportunity to look at the big picture. Reviewing your financial statements gives you three benefits.

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First, it shows you whether you’re running a healthy business or if you need some financial tightening going forward. Your documents should provide a guide to your company’s financial position and health, and should include details about your assets and liabilities, as well as profit and expenses.

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Second, if you do need some adjustment (more sales, say, or fewer expenses), financial documents show you where adjustments are needed and tell you how much you need to adjust. Third, if you’re in the market for funding or expansion, financial documents are often required to let interested parties see the financial records of your business.

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The financial documents you need to review at year-end are:

• The balance sheet report - showing all the assets, liabilities, and equity

• The income statement report - showing revenue, expenses, and profit

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3. Analyze cash flow statements

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Positive cash flow is often the definition of success for small business. Your goal is to generate more money than you’re spending. Toward the end of the year, it is a good idea to analyze your cash flow statement to identify trends throughout the year and determine whether or not you can pay vendors and leases, apply for loans, and ultimately take home a profit..

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Cash flow problems happen for a variety of reasons. The faster you can identify the problem, the faster you can resolve it. Unfortunately, adding seasonal staff, paying your employees an year-end bonus, increased advertising, and ordering extra inventory over the holidays can quickly drain your small business Q4 profits.  It’s important to monitor that net cash outflows don’t exceed cash inflows.

 

To calculate cash flow, separate cash flows into three specific activities:

• Operating activities - revenue and expenses

• Investing activities - assets purchased and assets sold

• Financial activities - loans and repayments

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4. Review your tax deductions 

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One of the biggest questions on the mind of small business owners is likely what different expenses can you claim to attain tax deductions and benefits? The truth is that it really depends on the type of business you operate. However, there are many expenses which small businesses can write off in order to reduce their taxes. The important thing is that the expenses must be incurred to earn business income and they must be reasonable under the circumstances.

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In terms of timing, the only restriction is that expenses incurred in a businesses fiscal year must be claimed against income earned in that year. Remember to keep your receipts as back up for your expenses as they will prove necessary if you’re selected for an income tax review or audit by the Canada Revenue Agency.

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5. Reconcile accounts receivable

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As a business owner, you likely stay on top of your invoicing and receivables. Even if you do, this is still a good time to review where your accounts receivables are at, as well as your invoices. This includes re-visiting any invoices that have yet to be paid, confirming whether or not they are still incoming or if they simply weren’t entered as of yet.

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This is also the time to review any outstanding invoices that are past due 60 days, and to consider if the business should be writing them off. Bad debt needs to be noted and accounted for so that it can be recognized at tax time.

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6. Conduct a year end inventory count

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As year-end approaches, it’s time for calendar-year entities to perform physical inventory counts. Though physical counts may be seen as time-consuming and disruptive, a well-executed count of what’s on hand can provide valuable insight into operational efficiency. The goal of any business is to have enough inventory on hand to meet customer needs but not too much so that items expire, lose popularity, become obsolete, or needlessly take up expensive storage space. 

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Estimating the value of inventory may involve subjective judgment calls, especially if your company converts raw materials into finished goods available for sale. The value of work-in-progress inventory can be especially hard to assess, because it includes overhead allocations and, in some cases, may require percentage-of-completion assessments.

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7. Backup your computer(s)

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It’s best practice to keep backups of important data. Make sure that your important files, including accounting documents, client information, and valuable emails are backed up and secure. If your employees deal with important documents, be sure to provide them with external hard drives or access to a cloud-based storage system to ensure all data is stored safely and securely as you enter the new year.

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