Learn why top businesses don’t skip their monthly close
Clean and accurate financial statements form the backbone of successful tax planning. Clean financials don’t only ensure compliance with tax regulations. They also empower business owners to make informed decisions that can significantly impact profitability and growth.
Learn how to make sure your financial statements are up to par by reviewing the following essential components.
Your future depends on your present
It is impossible to make a good plan without clearly understanding where you currently are. That’s why financial clarity is crucial to effective tax planning. Understanding both current and future profitability allows business owners to plan for the future, identify potential deductions, and avoid costly mistakes. This understanding can only be achieved through a diligent and timely close process.
Close books monthly to see your present clearly
To maintain clean financials, a structured monthly close process is vital. Consider the eight following aspects of a monthly close to ensure a thorough process.
1. Beginning balance sheet review
A comprehensive review of the beginning balance sheet sets the stage for the entire close process. This review involves checking the accuracy of assets, liabilities, and equity. Ensuring that these accounts reflect correct values provides a solid foundation for all subsequent financial activities.
2. Bank account and credit card reconciliations
Reconciliation of bank accounts and credit card statements is crucial to ensure that your records match up with what the banks have on file. This process helps identify discrepancies that could indicate errors or potential fraud, allowing you to address issues before they escalate.
3. Aged receivable analysis
Analyzing aged receivables gives insight into outstanding invoices and cash flow. By evaluating which accounts are overdue, you can take proactive steps to collect payments. This not only improves liquidity but also provides a clearer picture of your financial health.
4. Account reconciliations for material assets and liabilities
Reconciliation of material assets and liabilities ensures accuracy in your financial statements. These accounts typically have a significant impact on your overall financial position, so it’s essential to verify their correctness regularly.
5. Accuracy of payroll entries
Payroll is often one of the largest expenses for a business, making it critical to ensure that payroll entries are posted accurately. Mistakes in payroll can lead to compliance issues and financial discrepancies that may affect your tax filings.
6. Margin analysis
Conducting a margin analysis helps you understand the profitability of your products or services. By analyzing gross and net margins, you can identify areas where costs can be reduced or pricing strategies adjusted to improve profitability.
7. Review of transactions running through equity
Regularly reviewing transactions that run through equity accounts helps maintain transparency in your financials. This includes checking for any unusual transactions that could raise red flags during audits.
8. Budget vs. actual analysis
A budget vs. actual analysis can provide invaluable insights. By comparing your financial performance against your budgeted figures, you can assess how well your business is operating and make necessary adjustments to improve future performance.
How do I close my books monthly?
Closing your books monthly can be done in-house or outsourced, depending on your business’s size and capabilities. Many small businesses find it beneficial to outsource this process, as it can lead to more accurate and efficient financial management. For less than $500 a month, small businesses can access professional services like ours to ensure their financials are clean and compliant with tax regulations.
Why should I close my books monthly?
Investing time and resources into maintaining clean financials pays off in numerous ways:
Make better decisions
Accurate financial statements provide a clear picture of your business’s health, allowing for better strategic decisions.
Ensure tax compliance
Clean financials reduce the risk of errors in tax filings, helping you avoid penalties and audits.
Manage cash flow better
By understanding your aged receivables and overall cash position, you can manage cash flow more effectively.
Increase profits
Regular margin analysis and budget reviews can lead to actionable insights that enhance your bottom line.
Please investors and stakeholders
Clean and accurate financials build trust with potential investors and other stakeholders.
Don’t just plan–build a tax strategy
Clean financial statements are a fundamental building block for a prosperous business future, and they’re also fundamental to a thorough, effective tax strategy.
Most small businesses are focused primarily on tax compliance. Our belief is that tax compliance is only a small part of an overall tax strategy. That’s why we equip our clients with a comprehensive and personalized tax plan, of which a monthly close process is the first step.
Learn what else a comprehensive tax strategy can offer your business by scheduling a call with one of our tax pros today.