As the end of the year approaches, it’s crucial for businesses to perform a thorough review of their financials to ensure that they’re not only compliant with regulations but also in a strong position to start the next year on the right foot. From tax planning to preparing financial statements, the end of the year presents an opportunity for CFOs and business owners to take stock of the company’s financial health and make strategic decisions. This checklist provides an in-depth guide for what every CFO should review as part of their year-end financial process.
1. Reconcile All Accounts
One of the first and most important steps in year-end financial preparation is ensuring that all your accounts are reconciled. This includes bank accounts, credit cards, loans, and merchant accounts. Reconciling accounts helps confirm that your records match those of your financial institutions and that all transactions are accounted for.
Key steps to reconcile accounts:
- Compare your internal accounting records with external bank statements.
- Ensure all deposits, withdrawals, and fees are recorded.
- Resolve any discrepancies between your books and the bank’s statements.
Reconciliation is vital because errors in your financial records can snowball into larger issues when it’s time to file taxes or create year-end reports.
2. Review Profit and Loss (P&L) Statements
Your Profit and Loss (P&L) statement gives a clear picture of your business’s income and expenses throughout the year. As you approach year-end, review your P&L to assess the financial performance of your business.
What to look for:
- Revenue growth: Compare your current revenue to last year’s numbers to identify trends and growth opportunities.
- Expense patterns: Evaluate your expenses to see where you can make cuts or allocate more resources.
- Net profit: Determine your business’s profitability and identify any changes you can make to improve margins.
By analyzing the P&L, CFOs can identify both strengths and weaknesses in the company’s financials, making it easier to plan for the upcoming year.
3. Prepare a Cash Flow Analysis
Cash flow is the lifeblood of any business. As part of your year-end checklist, a thorough cash flow analysis is essential to understanding how well your business has managed its cash throughout the year. This will help you identify potential cash shortages and surpluses as you head into the new year.
Steps for a year-end cash flow analysis:
- Review your cash inflows (sales, loans, etc.) and outflows (expenses, repayments, etc.).
- Project cash flow for the first quarter of the coming year based on past trends and upcoming expenses.
- Identify any cash flow gaps and create strategies to manage them (e.g., tightening credit terms, negotiating better supplier deals).
Understanding your cash flow allows you to make informed decisions, ensuring you have enough liquidity to cover expenses and invest in growth opportunities.
4. Review Accounts Receivable and Accounts Payable
A year-end review of your accounts receivable (A/R) and accounts payable (A/P) ensures that you’re not missing any important payments or collections. This also helps maintain strong relationships with customers and suppliers while ensuring a healthy cash flow.
Key steps to review A/R and A/P:
- Accounts receivable: Identify overdue customer payments and follow up on any outstanding invoices. Consider writing off bad debts if collection efforts have been exhausted.
- Accounts payable: Ensure that all supplier payments are up to date. If possible, negotiate extended terms with suppliers to improve cash flow.
CFOs should also evaluate the effectiveness of their billing and collections processes, ensuring that they’re optimized for efficiency and accuracy.
5. Conduct an Inventory Check (if applicable)
If your business holds inventory, conducting a year-end inventory check is essential for both financial and tax purposes. Proper inventory management can help you minimize waste, control costs, and better predict future purchasing needs.
Steps for an inventory check:
- Perform a physical count to ensure the actual inventory matches what’s recorded in your books.
- Identify slow-moving or obsolete items and consider strategies to move or write them off.
- Review inventory turnover rates and adjust your purchasing strategy as needed for the new year.
Properly managing your inventory at year-end can reduce excess carrying costs and provide tax advantages by ensuring that inventory values are correctly recorded.
6. Review Tax Strategies
Tax planning is an essential part of year-end financial preparation. A proactive tax strategy can help minimize liabilities and maximize deductions. CFOs should work closely with accountants or tax advisors to ensure all potential tax-saving opportunities are explored.
Key tax strategies to review:
- Defer income or accelerate expenses to manage taxable income.
- Review depreciation schedules for assets to ensure maximum tax benefits.
- Take advantage of available tax credits and deductions.
- Ensure all relevant tax forms (e.g., 1099s) are prepared and filed on time.
CFOs should also prepare for any changes in tax laws or regulations that could impact the business in the coming year.
7. Assess Budget Performance and Plan for the Next Year
As you close out the year, it’s important to review how well your business adhered to its budget and to make any necessary adjustments for the coming year. This will involve evaluating how actual performance compared to budgeted figures and identifying any significant variances.
Key areas to assess:
- Revenue goals: Did your business meet or exceed its revenue targets?
- Expense control: Were expenses managed within budget, or were there areas of overspending?
- Capital expenditures: Did your business make the necessary investments in equipment, technology, or other assets?
Once you’ve reviewed the current year’s budget, begin planning for next year. Establish realistic revenue and expense projections, set financial goals, and outline key strategies for growth.
8. Ensure Compliance and Prepare for Audits
Year-end is an ideal time to ensure that your business is fully compliant with financial regulations, especially if your company is subject to an audit. Auditors will look at a range of financial documents, so it’s crucial to ensure that everything is accurate and up to date.
Compliance tasks to complete:
- Review payroll records to ensure compliance with tax and labor laws.
- Ensure that all financial statements and documents are accurate and properly filed.
- Review any contracts or agreements to ensure they are being upheld.
If your business is anticipating an audit, prepare all necessary documentation in advance to ensure a smooth process.
9. Set Financial Goals for the Upcoming Year
The final task on your year-end financial checklist should be setting clear and measurable financial goals for the coming year. These goals should be based on the insights you’ve gained from analyzing your business’s performance over the past year.
Examples of financial goals:
- Increase profit margins by 5% through cost-saving initiatives.
- Reduce accounts receivable days by improving collection processes.
- Grow revenue by 15% by expanding into new markets.
Setting specific, actionable goals gives your business a clear direction and helps guide decision-making in the year ahead.
Conclusion: A Thorough Year-End Financial Review Sets the Stage for Success
Taking the time to conduct a comprehensive year-end financial review is critical for ensuring that your business is well-positioned for the challenges and opportunities of the coming year. By reconciling accounts, analyzing cash flow, reviewing tax strategies, and setting clear goals, CFOs can help their businesses close out the year strong and prepare for future growth.
If you’re looking for expert guidance to navigate your year-end financial review, book a complimentary consultation with our team today. We can help you ensure that your finances are in order and that you’re ready to hit the ground running in the new year.