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A New Year Checklist for Your Small Business

accounting bench business Jan 03, 2022
written by Bench Affiliate

Making a list and checking it twice isn’t only reserved for the jolly and white-bearded. Taking steps to get organized and plan for the year ahead is a great strategy for any entrepreneur.

Here’s a rundown of everything your small business needs to consider as you head into the New Year. 

  1. Small Business Bookkeeping

Bookkeeping may not be the most exciting part of entrepreneurship, but it’s a practice that can make or break your small business. If you haven't done this already, at the top of the year, gather paper or digital copies of all of the financial documents related to your business.

These can include:

  • Bank statements
  • Business credit card statements
  • Interest statements
  • Business receipts and invoices
  • Payroll reports
  • Last year’s tax return

Next on your list: creating financial statements.

There are three main types of financial statements that can help grow your small business. Essentially, these documents tell you how much money your business has generated, where it comes from, and where it’s going.

Balance sheet: gives a clear snapshot of your small business finances, and is useful when seeking outside investment, selling your business, etc.

Income statement: allows you to track profit and loss, helping you see opportunities to create more cash flow and improve your overall profit margin.

Cash flow statement: shows your net cash flow, or the amount of money you have on hand for a specific period of time.

Cross-check and reconcile accounts

Make sure your accounts payable and accounts receivable are accurate and up to date by:

  • Looking at outstanding invoices and collecting payment
  • Paying off any debts from the year
  • Reconciling credit card statements with your accounts to avoid missed or double-counted transactions
  • Going through your balance sheet and income statement line by line to make sure every record is correct

Feeling a little overwhelmed? Bench a partner of Prism Insurance Agency, Inc. takes away the stress of bookkeeping and imports bank statements, categorizes transactions, and prepares financial statements for you—so you can get back to running your small business.

2. Tax Filing Preparation

Imagine wrapping up the month knowing everything you need for tax season has already been wrapped up. Feels good, right? Now, let’s channel that feeling into your tax preparation.

What you’ll need to file

Different business entities require different tax filing support. Still, it’s a good idea to have your foundational financial documents at hand before starting the process. 

Gather relevant business records like:

  • Your tax return from last year
  • Your Employer Identification Number
  • Your SSN
  • Financial statements (balance sheet and income statement)
  • Receipts and expenses

How to file taxes according to your business structure

Tax filing will be different depending on your business structure. Here are the main considerations for each entity type.

Sole proprietors: Fill out Schedule C when you file your annual personal tax return.

Partnerships: File using Form 1065. Then, each partnership member needs to include a Schedule K-1 that shows their share of the profits and losses for the year.

Limited liability corporations (LLC): If you are the only member of your LLC, fill out Schedule C when you file your annual personal tax return. For LLCs with more than one member, file with Form 1065 and then each partnership member needs to include Schedule K-1 showing their share of the profits and losses for the year. Report this number on each LLC partner’s personal tax return.

C corporations: Prepare and file a separate corporate tax return by using Form 1120. This is on top of preparing your personal tax return. 

S corporations: Your shareholders report their share of profit or loss with Schedule K-1 on their personal taxes. The corporation uses Form 1120S to file a corporate tax return.

Lastly, don’t forget about independent contractors. If you paid any contractors more than $600 in a year, you need to submit a Form 1099-MISC to the IRS. 

The more complex your business entity, the harder it is to manage end-of-year tax filing. Bench (a partner of Prism Insurance Agency) handles all of your tax planning, prep, and filing needs to make sure you’re not leaving money on the table.

How to maximize your tax deductions

Not only will keeping track of every receipt and business expense please your accountant—it can save you a hefty chunk of change at tax time. Tax deductions are a way to significantly reduce your overall tax bill, so make sure you’re taking full advantage.

Common tax deductions include:

  • Advertising and promotions
  • Business meals
  • Business insurance
  • Business bank fees, and so on
  • Education
  • Home office supplies
  • Rent expenses
  • Travel expenses
  • Telephone and Internet expenses
  • Salaries and benefits

As a small business owner, knowing what you can and can’t write off takes time and research. Having an experienced bookkeeper (like Bench, which is a trusted partner of Prism Insurance Agency) to catch all deductions available to you will help you maximize your tax strategy.

3. Set Business Goals

There are two things every small business owner should do at the end of the year (or top of next year): look back and plan ahead. 

Reflect on the year you’ve had

If you’ve never set business goals before, start by focusing on ‘the hows’, and ‘the whys’ of your small business. They tell you the real story of your business and help you uncover opportunities for improvement.

The hows: How much money did your small business bring in this year? How many hours did you and any employees or contractors spend to achieve that number?

The whys: Did you meet your revenue expectations? If not, why not? On the other hand, maybe you saw a spike in sales compared to previous years. Why do you think that is?

Let’s say you sell silk-screened t-shirts. This year you sold all of your inventory but didn’t make as much as you expected. This might be a clue that you're facing other expenses you hadn't considered.

Knowing what went right (and wrong) in the last business year helps you develop business goals that are achievable, specific, and motivating. 

Plan for the year ahead

If you know what your business made this year, and what you want your business to make next year, you’ve already started the planning process.

Set a business budget: A realistic budget that takes into account your income and expenses can help keep your monthly spending on track in the new year. Compare your budget against your real-life business to streamline your business operations and highlight inefficiencies. 

Streamline low-value tasks: If you’ve got this far, it’s becoming clear that small tasks like bookkeeping and tax file preparation tend to add up over time. Spending those hours on other parts of your business could have a greater impact on your bottom line.

From bookkeeping to unlimited tax advisory support, Bench (a partner of Prism Insurance Agency) helps entrepreneurs streamline their small business finances. Bench can do your bookkeeping each month, offer year-round advisory services, and customized tax planning for your business to ensure you get your taxes filed on time, every time.

Photo by Olya Kobruseva from Pexels

 

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