Resources | Finance and Lending | November 28, 2023

The Year-End Accounting Checklist: How to Close the Books With Confidence

Nearing the end of your fiscal year? Businesses can benefit from a year-end accounting checklist to navigate the process smoothly.

Nearing the end of your fiscal year? Businesses can benefit from a year-end accounting checklist to navigate the process smoothly.

Year-end accounting, the process of evaluating and reconciling your finances over the entire fiscal year, is crucial to the success of any small to midsize business. Having a comprehensive record of these activities is key to understanding your business’s financial health and making growth plans for the year ahead.

It also appeals to shareholders, investors and lenders, which you may rely on to fund and expand your business. Perhaps most importantly, performing accurate year-end accounting can help you maintain good standing with regulators, stay prepared for tax audits and avoid errors that could have legal implications or affect your business relationships.

However, the fiscal year-end is usually a chaotic time for business owners, chief financial officers (CFOs) and accounting managers. Most businesses take over a month to complete annual closing, often juggling month-end and quarter-end duties simultaneously. Finding documents, chasing after buyers for overdue payments and correcting mistakes usually makes the process overwhelming — especially if you’re doing it alone or using manual processes.

The good news is that you can avoid unnecessary headaches with the help of a year-end accounting checklist. Here are five steps to ensure an efficient, accurate and insightful year-end closing.

5 key items for your year-end accounting checklist

1. Organize your financial records and reconcile accounts

The first step is to gather all of your financial paperwork. This is a lot easier if you keep files and statements organized throughout the year. Even if you stay on top of this from month to month, however, you’ll most likely still need to track down missing documents. If possible, give your employees a deadline with sufficient notice to submit any necessary records. These will include:

  • Cash receipts
  • Bank, credit card and loan statements
  • Outstanding invoices
  • Sales records and merchant statements
  • Inventory records
  • Payroll reports
  • Last year’s tax return
  • Records of any grants or entitlements, such as tax exemptions and government contributions

The next task is to make sure that your business’s financial records match your actual financial activities and make adjustments where necessary. This means reconciling your assets, transactions, statements, invoices and receipts.

2. Pay your outstanding bills

Closing out your accounts payable will allow you to enter the new year with minimal debt. Making these payments also reflects well on year-end reports and financial metrics. Communicate with any team members responsible for making payments and create an action plan for settling these bills. If you’re unable to pay some, document these expenses as liabilities or accrued expenses on your balance sheet.

3. Settle your accounts receivable (AR)

Collecting payments on outstanding invoices before the end of the year will strengthen metrics on your cash flow statement. However, settling accounts receivable can be challenging. There’s no guarantee that your buyers will pay, and it takes a significant amount of time and resources to follow up with them.
Many suppliers address this issue by leveraging early payment programs initiated by their buyers. These programs give suppliers an opportunity to request early invoice payments in exchange for a discount through an online platform. The faster your invoices are paid, the quicker you can close your accounts receivable, which is valuable if you’re under a year-end time crunch. For most suppliers, this — as well as the boost to cash flow — is usually worth the discount cost. If you’re a supplier for any large enterprises, you might already have access to an early payment program such as C2FO’s.

“Through C2FO, I’m able to get cash from our outstanding invoices a lot quicker, which allows me to continue to invest back into my emerging brand.”
Michael Twer
CEO and Founder, Delilah Home

As a small to midsize business owner, CFO or accounting manager, incentivizing your buyers with early payment discounts can make the process of settling AR much simpler and more efficient. It’ll also improve your year-end metrics such as days paid outstanding (DPO).

4. Review key metrics

Year-end accounting gives you a valuable opportunity to review your business’s performance over the last year. This enables you to identify challenges, forecast your finances and make realistic plans. How you approach this financial review will depend on your business and industry, but here are some standard metrics to include:

  • Income statement. Also called a profit and loss statement, this report outlines your annual revenue, expenses, losses and gains, providing your net earnings for the year. This shows your business’s profitability and can identify potential areas for growth.
  • Cash flow statement. A cash flow statement summarizes all of the cash and cash equivalents that have moved in and out of your business over the last year. This is key to understanding how accessible cash is for making debt payments, funding operations and financing growth.
  • Balance sheet. Balance sheets describe your company’s assets, liabilities and shareholder investments, and indicate financial risk. If you hope to secure financing or find investors in the year ahead, this statement provides a snapshot of your business’s financial health and creditworthiness.
  • Budget analysis. If you created a financial plan before the year started, how did your business activities compare? If you underestimated your financial obligations, take this into account when budgeting for the next year.
  • Cash flow forecast. Based on your expenses and revenue, calculate your anticipated cash flow over the next 12 months considering factors such as new business and buyer payment terms.

5. Plan for the year ahead

At this stage, your accounts are reconciled, your AP and AR are settled, and you’ve documented the financial year in review. The last step in your year-end accounting process is to set goals for the coming year. Many businesses use the SMART (specific, measurable, attainable, realistic and timely) goals framework when creating annual budgets and financial plans.

Describe the goal in detail, including why you are setting the goal.
Create quantifiable goals that are measurable on a weekly, monthly or quarterly basis.
Define clear actions that you can take to realize the goal.
Compare the goal against your financial statements to determine whether it’s realistic for your business.
Create specific timelines and deadlines as part of your goal’s action plan.

If you anticipate a cash flow surplus in the year ahead, your plans might include making investments such as purchasing equipment, expanding the business or launching a new product. Alternatively, an insufficient cash flow might necessitate plans for landing new buyers, implementing more efficient processes or rethinking your approach to buyer payment terms. If you successfully used an early payment program to help close AR before the fiscal year-end, this strategy could also be factored into your future growth plans.

The bottom line about year-end accounting checklists

Closing your books at the end of the year doesn’t have to be overwhelming. A year-end accounting checklist will help you stay prepared and organized, and ensure that you can start the new year with realistic financial goals. If you run into problems settling your accounts receivable before the next fiscal year, consider leveraging solutions such as an early payment program to expedite the process and optimize your performance metrics.\

Learn more about C2FO’s Early Pay solution for suppliers.

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