Close Out 2021 With This Small Business Year End Checklist img

Close Out 2021 With This Small Business Year-End Checklist

While many people think about holiday celebrations and new year’s resolutions this time of year, your focus is on year-end business planning for your small business. Part of planning involves closing out the current year while creating your strategy for the upcoming year. 

A clear business vision for 2022 will give you a head start on the competition and lay a solid foundation for your company. Below, we’ve prepared this year-end small business checklist to help you close the year properly. It’s a rundown of every major and minor task you need to take care of before 2022 becomes a reality. 

Gather and Prepare Your Business Documents

At the heart of your business are your core financial documents. They reveal the current state of your operation and how you can improve your business based on past performance. Reports can show you data in four key areas.

  1. Your company’s financial health
  2. Assets and liabilities
  3. Profits versus expenses
  4. Overall cash flow

Year-end financial documents you should gather include.

  • The balance sheet report, showing all the assets, liabilities, and equity;
  • The income statement report, showing revenue, expenses, and profit; and
  • The cash flow statement report, showing opening and closing cash within a specific period, with inflow and outflow itemized.

Prepare Your Year-End Balance Sheet

A balance sheet would show you if you operated in black or red in 2021.

You compare everything your small business owns against everything your business owes. The business needs to collect assets inventory, property or equipment, trademarks, and invoices. Liabilities may include pension plan obligations, debt, or invoices you still need to pay. By comparing this, you can determine whether you should be cutting back on your spending or pushing your business to grow.   

The income statement is important because it clearly shows you if you are earning more than you’re spending, or vice-versa. It compares the amount earned in a period versus the amount spent. Because of this, it is also called a profit and loss statement. It’s different from the balance sheet because it looks at business expenses and earnings across a period instead of a single, frozen instance like the balance sheet. 

Prepare Your Year-End Cash Flow Statement

Your cash flow statement should show how much cash you have at the beginning and end of a specific period and where it all went. On a cash statement, you want to document three things.

  1. Cash flow from operations, such as revenue and expenses. In other words, the money you earned or lost from doing business as usual.
  2. Cash flow from investments, such as assets bought and assets sold. It can also include stock.
  3. Cash flow from financial decisions, such as loans and their repayment.

Once you have an itemized list of all of the above, you should be able to see up how much cash you have at the end of this period. Compared to what you had initially, you can see if you generated or lost money.

Putting Your Financial Reports Together

From these documents, you should calculate the following numbers:

Current Ratio

Ideally, your current ratio should be between 1.5 and 2. A current ratio of 1 means you may not have enough money to last the year, whereas a current ratio of more than two could mean you’re not investing enough money into your business or outside investments.

Debt Ratio

your total debt divided by your total assets. A “good” debt ratio depends largely on the industry, but anything below 0.3 is considered fair. Anything above 0.6 tends to make it difficult to bet additional loans.

Gross Profit Margin

First, divide your profit (what you have leftover after paying your costs) by total revenue (the total money you brought in). It shows you what percentage of your income is profit!

Small business owners should keep these statements monthly or at least quarterly. You want to know the state of your business consistently to plan accordingly. If you want to expand, you need to know you can. If your business is starting to show red ink, you want to know as soon as possible.

Get Your Tax Documents Together

While the end of the year may not be tax season, it’s a good idea to get Get your tax documents together. The financial reports you prepared in the previous step should you fill out your small business return. However, you may need to fill out additional tax forms, which may include

  • Form 1099-NEC and Form 1096
  • W-2 Forms and W-3 Forms 
  • State and federal payroll returns annually (Form 940) or quarterly (Form 941)

If relevant, you should also compile your income, both business and personal. Gather all your deductions.

Assess Your 2021 Goals

If you had a specific 2021 goals list, pull it up and go over it. If you didn’t, write down what your unwritten goals were (and consider a written list for 2022). Review your goals systematically and assess them using the following steps:

  • Revisit your January goals.
  • Crunch the numbers.
  • Look for performance gaps.
  • Identify areas of improvement.
  • Re-dedicate yourself to long-term outcomes.

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