*This blog was originally published on 10/6/22 and was updated 8/29/23.
As we approach the end of the year, businesses should start planning for 2024. Can you invest in growth, hire new employees, acquire assets or purchase inventory, etc? Or should you look at downsizing, reducing or selling? How profitable was 2023 and what outcomes should you expect for 2024? These are all great questions to start with, but how do you effectively determine the answers? It all comes down to clean books, accurate financial statements, and understanding what your financials are telling you.
Clean Books: Why is it Important?
Although every business is required to have accurate financial records at tax time, staying on top of your records throughout the year is critical to the efficiency and productivity of your business. This can include income statements, balance sheets, reconciling your bank accounts, and much more. Having clean up-to-date information will help…
• Identify potential tax savings
• Avoid tax surprises and potential audits
• Avoid costly mistakes, tax penalties and interest charges
• Make confident decisions about your business based on financial facts
• Quickly produce accurate records anytime throughout the year when needed (for example: statements for loans, lawyers, or investors)
Have questions about projecting your potential tax liability? Click here for 3 reasons a tax projection is a wise financial move.
Clean Books: Potential Problems
“For many businesses clean means having accounts receivable (money owed to you) and accounts payable (money you owe) records always up to date. Otherwise, you hurt your cash flow by being slow to invoice customers and follow up on late payments. You hurt vendor relationships by being late on bills. Clean also means having an accurate income statement and balance sheet soon after the end of each month. Having accurate financial statements usually means bank accounts are reconciled, revenue and expenses are matched in the correct period, inventory is accurate, and depending on the nature of the business, other accounts are up to date.”
Not having clean books could lead to potential problems, such as..
• Underestimating startup costs
• Expecting profitability too soon
• Overlooking high overhead costs
• Growing too quickly
• Collecting receivables too slowly
• And much more
All in all, remembering to routinely review your cash flow statements and keep them clean, could save you potential headaches in the long run. You are much more likely to avoid a future crisis when you are prepared for it rather than struggle to react to it when it happens.
Proactive vs. Reactive Approach
It’s easy to overreact to financial situations that come our way without all the facts. But what if those situations could be prevented? This is why our team encourages a proactive approach vs a reactive approach when it comes to clean books.
Waiting until the last minute can be costly. Not only could messy books lead to bad financial decisions throughout the year, but outsourcing pre-tax cleanup could end up costing more than routine maintenance.
If you’re behind on your books, don’t worry! There is still time for cleanup and planning for 2024. Here are a few items to consider…
• Review accounts payable and receivable
• Review cash flow statements
• Review profit and loss statements
• Reconcile all checks and invoices
• Review fixed asset needs
• Write off bad debts
• Consider year-end incentives and future staffing needs
• Consider prepaid income and expenses
• Verify vendor information for 1099s (Click here for more 1099 information)
Want to learn more? Attend this class…
If you’re unsure where to begin, our ‘Understanding Your Financials’ course will not only teach you how to read financial statements but also how to interpret them. With the knowledge you’ll gain, you will have greater confidence in what is currently happening within your company, and you’ll be able to work toward your end goals. (Click here to learn more about this training course.)
Our Business Services Team of professionals can help clean up your books now in order for you to…
• Make financial decisions before the end of 2023
• Avoid costly tax mistakes
• Prep for tax season