End of Year Tips From Financial Experts
If you don’t work with an accountant or bookkeeper when preparing your small business for year-end, you’re in luck.We chatted with two women who work in the financial industry to get their tips on how to make it through this chaotic tax time.
Krista McLellan calls herself the “accidental bookkeeper” because she never intentionally set out down the path of bookkeeping. The process happened naturally when she started managing the books for her daycare service and later helped her late husband’s colleagues who were volunteer firefighters who held multiple jobs. Krista learned firsthand how crucial it is to have financial stability when she experienced the bills, and debt, that came from her husband’s cancer treatments. We also spoke with Randi Arthurs, a CPA at Blethen Tax & Accounting Inc. The firm has been around for nearly 40 years, and Randi has worked with them since 2012.
Below, you’ll learn the tips that these women share with their small business clients every year to help them prepare for year-end.
Prepare Throughout the Year
Both women agree that proper preparation is key to small business success. Krista said that by the time they need to start prepping for the end of the year, most small business owners are in way over their heads and way behind on their preparations. Instead of asking for help early on, most business owners are too embarrassed to admit they don’t know what they need to end the year on a secure note and prefer to stick their heads in the sand and avoid their problems. The most common issue she’s found is that people don’t keep track of their paperwork the way they should. She recommends keeping copies of all documents and receipts somewhere easily accessible or filing them on a secure cloud platform like QuickBooks. When it comes time to meet with your accountant or bookkeeper to prepare for year-end, everything will be on hand and ready for any needed changes. Krista recommends performing a ‘mock close’, a test run to see if you have all your documentation and everything you need far in advance of your deadlines.
Randi also stresses the importance of organization and explained that it will look different for each small business owner. While some will keep track of receipts and other important paperwork online like Krista suggests, others may feel more comfortable keeping their documents in an accordion file or storage box. Creating a system that makes sense for your small business will make organization simple and easy to follow during the year, and will also make it less of a chore.
Don’t Be Tardy
Krista emphasizes the importance of starting your end of year wrap-up early. Ideally, she recommends meeting with your accountant or bookkeeper throughout the year to make sure you’re on track and that you’re prepared for any cash flow surprises that may occur. Krista explained that meeting with an accountant or bookkeeper throughout the year will actually save the business owner time and money because they’re less likely to miss a deadline and risk a hefty fine. It also allows the business owner to strategize and plan for the year to come.
There’s no need to panic if you haven’t been doing this during the year. However, you don’t want to wait too much longer before scheduling your appointment. When year-end comes, you are not the only small business owner looking for help. Randi suggests getting an appointment on the books as soon as possible, even if you don’t think you’re ready. It’s easy to fall in the trap of thinking there is more time and therefore put off gathering everything you need. Scheduling an appointment with your accountant or bookkeeper will give you a hard deadline to work for, and you can rest easy knowing that you have the time set aside to get some extra help if you need it.
Avoid Common Payroll Mistakes
When asked about the biggest mistakes made on payroll and payroll taxes at the end of the year, both Krista and Randi noted that many business owners make the mistake of paying out bonuses, holiday gifts, and other fringe benefits incorrectly. Bonuses need to be treated as taxable income and should technically face the same payroll and tax withholdings as a regular employee paycheck. Scrutiny around bonuses and fringe benefits by the IRS has increased in recent years, which is why it’s extra important to ensure employees are being paid accordingly for these benefits. Another mistake that Krista sees frequently is small business owners confusing vendors and employees. While it may seem harmless, there are different standards and laws to follow when it comes to paying an employee, an independent contractor or a vendor. Mixing these up may lead to costly consequences a small business owner might not be prepared for.
Krista also notes that many entrepreneurs don’t create employee handbooks, which can help establish guidelines when it comes to the end of year paid-time-off and end of year bonuses. She stresses that if you have employees with unused PTO that doesn’t roll over, it’s better to offer a pay-out option rather than have all your employees scramble to take their vacation days before the end of the year. There is also the option to let your employees vacation time roll over into the following year.
Consider an Accountant or Bookkeeper for Year-End Prep
We’ve been touching on this throughout the article, but if you’re still not sold on how an accountant or bookkeeper can make year-end easier, we have a few more arguments for you to consider. Both Krista and Randi are available to their clients year-round, meaning they aren’t going to drop their clients when tax deadlines hit. Randi said that she has some clients who have complicated returns, or file taxes on a quarterly basis, so she is always checking in with them to see how they are doing and offer her guidance. Krista also stays in touch with her clients during the year and will check in monthly with some of her clients, asking questions about their finances each time to keep things on track. As to not overwhelm her clients, she will only ask a few questions with each email, but when tax filing does come, they have to know where they stand on most subjects. At the end of the day, remember that an accountant or bookkeeper is an asset to your small business. They will help you manage cash flow, guide you in the right direction to make sure you’re reaching your financial goals, and overall keep you financially stable.