It’s the most wonderful time of the year! A business owner’s guide to reviewing their books at yearend.

It’s that time of year again, time for skating with Santa, family get together, and of course – my favorite part – TAX TIME!

I’m going to talk about some easy things that every business owner can and should do at yearend time to make sure that their accounting is up to snuff. I’m a believer that business owners shouldn’t be doing bookkeeping themselves; they should pay someone else to do it because their time is way better spent on Revenue Producing Activities, leadership and business building so unless you earn revenue from bookkeeping – you shouldn’t be using energy on it. That said, business owners are responsible for their businesses and need some basic tools to make sure that they are getting the information they need from their books, and for staying off the CRA’s radar.

If you don’t have a good bookkeeper and up to date and accurate bookkeeping, you may as well stop here and fix that problem first because you won’t be able to take any of the actions listed here without them.

Bookkeeping and Financial Review

We’ll be discussing several reports that can be generated from your accounting software and that you should review regularly, but at least at yearend. GURU by Achen Henderson customers are provided with most of these reports monthly, but for everyone else I’ve included links on how to access these reports in both Xero and QBO. The linked articles will often contain advice on how to fix discrepancies that you find in the reports, but as a reminder, fixing these things should be your bookkeeper’s responsibility, not yours. Bring it to their attention so that they can make the chance to ensure consistency across your company’s books.

Cash, debt, and credit card balances

You should compare the yearend balances in your cash, debt and credit card accounts with the yearend statements that your banks provide you. Lots of the time the yearend balance in your accounting records will be different from the bank’s statement balances, the differences are called “reconciling amounts”. These could include cheques that are received but haven’t cleared the bank, or payments that have been made that haven’t cleared the bank.

Your bookkeeper should be preparing “reconciliations reports” for each of these accounts every month, and certainly at yearend. If not, there’s a chance that not all of the company’s transactions have been recorded. Review the yearend reconciliation reports for each of your bank, debt, and credit card accounts and make sure that the ‘uncleared cheques’ and ‘uncleared payments’ listed on the reports make sense. Common mistakes we see are items that are more than a month old or doubled recorded payments or cheques that will not clear the bank again. Generally, valid reconciling amounts will be less than a month old, and in most cases less than two weeks.

Accounts Receivable (“AR”) and Accounts Payable (“AP”)

Checking AR and AP Aging reports one is probably the lowest hanging fruit in terms of making sure your books are right.

Run an Accounts Receivable aging report monthly and at yearend. This report will list all money that is owed to your company, who owes it, and how long it’s been owed for. Run this report and check:

  1. That the total amount on the ageing report matches the yearend balance in your accounts receivable report.
  2. That the amounts listed as owed to you are actually owed to you. Most business owners know exactly who owes them money, so this is a surprisingly quick check.
    1. Follow up on overdue amounts that are owed to you, as not having this cash can be crippling your business.
    2. A common error on this report is when an invoice has been double reported, a receivable will show from a customer that has already paid you. If something looks strange, you can go to that customer’s record in your books and look through their invoices for doubled up invoices,

The same goes for AP. Run an Accounts Payable aging report monthly and at yearend. This report will list all amounts that your company owes to others, who it is owed to, and how long it’s been owed for. Run this report and check:

  1. That the total amount on the ageing report matches the yearend balance in your accounts receivable report.
  2. That the amounts listed as owed to you are actually owed by you.
    1. You want to get these paid as soon as possible to keep your vendor relationships in good standing and to protect your company’s credit score.
    2. A common error on this report is when bills have been double reported, a payable will show to a vendor that has already been paid. Look for suppliers on this list, like restaurants, gas stations and coffee shops, that don’t extend credit. If those appear on this list, there is clearly a mistake.

Property and equipment general ledger review

Look through the General Ledger reports for property and equipment reports to make sure that any equipment you purchased during the year, like computers, office furniture, improvements to your leased premises, have been included in here, and for the correct amounts.’

Taxes payable and CRA online

Most business owners like to keep their distance from the CRA, and the best way to do that is to make sure that your tax and installments are paid up on time. At GURU by Achen Henderson, we advise our customers what their tax bill and next year’s installments are on every yearend letter that we send to them. This information can also be found in CRA’s online portal called My Business Account. If you don’t yet have access to my business account, stop reading here and get access now, here: My Business Account – Canada.ca

Once you’re in your portal, here’s some important things to do at yearend time:

  1. Read all mail sent from the CRA, send anything alarming to your accountant right away.
  2. Review overdue balances in your corporate, GST/HST, and payroll accounts. Get these balances paid right away (overdue balances will attract 8% interest starting in Q1 2023).
  3. Ensure that all your installments on all accounts are paid and up to date.
  4. Compare your tax balances to the balances in your tax accounts in your bookkeeping records. If they don’t line up, ask your bookkeeper to dig in and fix them.

A good exercise to get into at yearend time is to setup calendar reminders about your tax installment and other tax due dates (insert link to tax deadline blog here) for next year so that you don’t miss them. I take it a step further and schedule my installment payments in my online banking platform at the beginning of the year so that I don’t have to worry about it again during the year.

Profit and loss statement (full year, compared to last year)

A profit and loss statement is a snapshot of performance over a period of time. I like to run this report for the entire fiscal year, and then add in a second column with last year’s performance, and a third column showing the amount of change. Looking at the year-to-year change can be very beneficial to identify surprises in changes in revenues as well as individual expense items. Compare the year-to-year variance to your expectations of how the company has been doing. Dig into these variances by clicking on surprise account balances in this report, which will open the general ledger so you can look through the individual transactions that make up that account

Common issues we see here are misclassified transactions, items that may have been added to the wrong account, or for example equipment like computers that have been added to an ‘office expense’ account when it should have been added to the property and equipment accounts. Another common problem we see often are double reported transactions.

Profit and loss statement (monthly)

At GURU by Achen Henderson we believe it is super important for our customers to get a profit and loss that has every month in the current fiscal year listed in a separate column of the report. This allows the business owner to:

  1. See month to month fluctuations in their business
  2. Quickly identify oddities, double reported, or missing transactions.

For example, if you see that telephone expense is $120/month every month, but was $0 in September and October, there’s a good chance a few phone bills were missed. If November’s entry is $360, you’ll know that 3 months were entered in November. Lumpy entries like this can make cash flow planning a challenge.

Profit and Loss (general ledger review)

After you’ve looked at the profit and loss compared to last year, and monthly for this year, it’s a good idea to click through each of the revenue and expense accounts to bring up their general ledgers and scan the transactions for strange amounts. Telus, for example, probably shouldn’t be in meals and entertainment, and there should likely be 12 Telus bills. The same goes for utilities. Maybe there’s an obvious doubled up transaction, etc.

Balance sheet report

A balance sheet is your company’s financial snapshot at a moment in time, it lists the assets (what it owns or is owed) and liabilities (what is owed) of the company on a particular day. I will write another series on understanding all of the component parts of a balance sheet but for yearend review purposes, it is important to run your company’s yearend balance sheet and make sure that the balances contained on it make sense. You’ve already reviewed several of the accounts on the balance sheet above (cash, debt, credit card, AR, AP, property and equipment, and tax), so your job now is to look at the other accounts listed on the balance sheet and ask yourself:

  • What do the account balances relate to? This may require a discussion with your bookkeeper to understand.
  • Do the balances make sense? Again, your bookkeeper should be able to explain the balances to you in a way that makes sense. If they can’t, it may be time for a new bookkeeper.

Reviewing your company’s balance sheet regularly, at least monthly, is critical to ensuring a well functioning bookkeeping system.

Set a budget for next year

There are so many reasons that setting an annual budget for the coming year is a good idea. For me, the main reason that you should do a budget is to set an expectation, and therefore set your intentions as to how you’d like to see next year go financially. This gives you a goal to aim at and will help you take specific actions during the year to achieve those goals.

 There’s a lot of steps between truing up last year’s financial data and using it, and some assumptions, to creating next year’s budget but those are a topic for another post. For this post, let’s just say that you should do it. The good news is that most modern accounting platforms allow you to set next year’s budget right in their platform and then generate monthly reports to compare your actual monthly results to what you’d budgeted. This allows you to have a better idea on a monthly basis of how your business is performing compared to your expectations and if any adjustments are needed. Without this information, business owners are often left asking “what happened” at the end of the year and being frustrated because they can’t use their financial data to answer that question.

I hope this has given you some good insight as to the basic steps that you should take to closed off your yearend. If you would like to discuss how we can help, please reach out – we’d love to chat.