Mention the word accounting and many business owners flinch. A new year is an opportunity to showcase any shiny new products or time-saving services offered to customers. But usually, this doesn’t include accounting systems. Accounting is part of the business many owners don’t like and have a harder time understanding. But accounting is a vital part of a company, and a good system that is understandable and, most importantly, used regularly, is imperative. The closing of one year and preparing for the next takes organization and planning.
Starting 2020 with a plan is an excellent first step. And that first step should be closing out 2019!
If your organization’s financial accounting period ends December 31, you need to begin preparing information to send to a CPA or tax preparer. The December bank and credit card statements start arriving in January, allowing the completion of the 2019 books. Once the books are finalized, gather the information in an organized manner and submit them to your tax preparer. Find out from your preparer what information is needed and make sure you include everything. Copies of December bank statements and end-of-year credit card statements are usually required, in addition to your profit & loss statement and balance sheet. While banks issue statements at the end of the month, credit card statements vary depending on the closing date. So, include the last statement showing transactions from December 31, 2020.
Once the 2019 financial information is in the hands of the CPA, put your physical 2019 receipts and statements into easy to access storage. You might need this information for your CPA or any questions from vendors, so you don’t have to dig through boxes to find something later. Put your 2018 receipts and statements in your long-term storage. Do not close the 2019 books in your software program until your CPA has completed your return.
With 2019 in the rear-view mirror and business schedules returning to normal, now is the time prepare for 2020. Having an accounting system in place that addresses the day-to-day activity and any unforeseen emergency makes the life of a business owner more manageable and allows them to focus on the business at hand.
This is the time to review your current software program to see if it offers everything your company requires. Accounting software programs make the life of non-accounting people easier and compiling data quicker. Also, check on the program’s security. Protecting information in the system is essential for the company and its clients. A failure in safeguarding sensitive data erodes the trust your customer has in your company.
Make sure to set up 2020 files for receipts and statements. Make a list of 2020 deadlines that includes W-2s / 1099s/ due dates, quarterly payroll reports, estimated tax payments, and tax return deadlines. Knowing when everything is due allows you to stay ahead of the filings and prepare in advance. Collect new W-9 forms from your vendors and suppliers. The W-9 form is required by the IRS for any person or company you pay more than $600 to in a year. Find the 1099 instructions on the IRS website, for complete requirements and exceptions. As a courtesy, remind your employees to review their W-4 withholdings. If they have a new family member, purchased a home, or changes in their situation, it will impact their taxes.
Also, now is the time to plan for any unforeseen events which could impact the company during the year. Whether it is tariffs, natural disasters, or cyber-attack, having funds available will assist in the survival of the company. The Federal Emergency Management Agency (FEMA) said, “90% of businesses that don’t reopen with five days of a disaster fail”. Having an emergency fund mitigates the financial burden on business.
Book an appointment with your CPA or business advisor and review your profit & loss statement, balance sheet, and cash flow statements. Advanced planning with a professional is imperative, so plan to visit your CPA more than once a year. Understanding IRS codes allows a company to reduce its tax liability. For example, buying more than 40% of your depreciable property in the 4th quarter of the year triggers different rules for depreciation. Business owners need to rely on the experts when it comes to taxes, as the laws are always changing.
And don’t wait. Now is the time to ensure that your 2020 accounting system works for you.