5 Accounting Tasks You Should Complete Before 2022
Congratulations! You have made it year-end, now let's get to work! All businesses are hectic at year-end, tirelessly working to complete important accounting tasks. It is time to reflect on your business's progress and plan for the future, using data and current results.
Service-based businesses must plan and strategize because we are not selling widgets, and our time spent is directly correlated to our income earned. Don't completely check out during the holidays, carve out some time to align your business goals with real data before the end of the year.
These end-of-year activities include: reconciling bank accounts, preparing financial documents, organizing tax filings, assessing 2021 results, and forecasting 2022 projections. You will be crushing it in 2022, and you will need a plan to execute that!
While many of these tasks you will need to touch up after December 31st, get a head start on them now, especially if the holidays bring you a slower work season.
Reconciling Bank Accounts
If you didn't reconcile your bank statements throughout the year, this will take some time catching up. Bank reconciliations are important for several reasons, including tracking income and expenses, detecting bank errors or fraud, and ensuring the accuracy of your records.
However, as a small business owner, this can be a hassle to complete routinely. To complete this task, you have to compare all bank statements to your business accounting records. If you find an error, you have two options to account for it - by either an adjusting journal entry or a bank reconciliation statement.
If this isn't your first year in business, you should already have a way of doing things. But if you are not sure, be sure to consult with an accountant.
Preparing Financial Documents
Now that your business records are correct, you should prepare your financial documents. It is important to get ahead of this before the end of the year. As a small service-based business owner, your time is extremely valuable. Waiting until the new year can make it more challenging to track down documents and reconcile the various transactions. These add up each day!
To accurately review your business's year results, and make projections, your financial statements are imperative. Take the time and resources to have annual financial statements. After you prepare your financial statements or pay your accountant to prepare them, take it a step further and compute your financial ratios. Start with the basic three: Current Ratio, Debt Ratio, Gross Margin Ratio.
Organizing Tax Filings
It is a good idea to organize your tax filings before the end of the year. While you will not be submitting your tax return yet, having everything organized will pay off dividends when it is time to file during 2022. Your financial statements will help a lot with this because an accountant will use that same data for the tax filings.
Organize the bank reconciliation, financial statements, estimated tax payment confirmations, payroll receipts, retirement contribution statements, medical premiums invoices, and any other documents that you historically provide to your accountant to file your business taxes.
Submitting this to your accountant early can also provide ample time for them to brainstorm any extra deductions are credits your business may be eligible for.
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Assessing 2021 Results
Something is elevating about finding your business downfalls and fixing them. Do not run away from this task, take the time and evaluate your business's successes and failures.
The Current Ratio will tell you if your business has enough current assets to pay off your current liabilities, this is important because many small businesses fail due to no cash reserves.
The Debt Ratio is similar, however, it will tell you if you have enough total assets to cover your total liabilities (total just adds in long-term assets and liabilities).
The Gross Margin Ratio will tell you the percent of money your business keeps after paying all associated costs of running the business, this is very important because the purpose of business is to make money.
You should also compare income and expenses by month, and analyze why the amounts fluctuated.
Forecasting 2022 Projections
The year is over - so kiss it goodbye and make 2022 even better. Take the time to plan and forecast next year. Forecasting allows you to predict and plan your new clients, revenue, and overall business growth.
While reviewing your business's 2021 results, you should have discovered some trends. Maybe you will spend more resources on marketing in 2022, and you predict it will increase leads by 5%.
Maybe during 2021, your small business grew 15%, if you did the same things, it is safe to assume your business will grow another 15% in 2022? Maybe you found some areas of improvement that you will address in 2022, and you predict 30% growth!
Make assumptions for every month based on prior years' performance. Using the data you have to make data-driven assumptions, makes it easy for your employees to believe you can achieve your business goals. Making everyone in the company excited about the new goals is essential because you cannot achieve them alone. Once your forecast is in place, be sure to measure and adjust throughout the new year.
