As we head into the end of another wild year, you might be feeling particularly ready to wrap things up. But you might also be feeling some fatigue from all of the uncertainty — not to mention the hustle of growing your tech startup.
Whether looking to 2022 feels energizing or exhausting, you’ve got a little work to do before you get there. Specifically, acting on end-of-year accounting to-dos can make a huge difference when filing your 2021 taxes.
Here’s a quick checklist of the things tech startups should do to wrap up their books for the end of the year.
Review and update your records
First up, it’s time to make sure everything is accounted for. When it comes to your startup’s books, that means making sure things are correctly recorded.
If you’ve been letting a stack of receipts pile up, input them now. If you know a certain team member hasn’t submitted an expense report in a while, remind them to get that in. Look over your bank and credit card statements to make sure expenses are getting recorded correctly in your bookkeeping system, too.
All told, your end-of-year accounting is only as good as the information you have to work from. Take the time to make sure your financial statements are up to date.
While you’re at it, make sure your recordkeeping is organized. If you get audited, the IRS can go back about six years — and you’ll want to have the correct documentation on hand. Whether you file things digitally or as hard copies, make sure your system still works and that all of the appropriate people are reliably using it.
Run year-end reports
If you work off the three statement model (something we recommend), now’s a prime time to run all three reports:
- Your income statement (also known as your profit and loss statement)
- Your balance sheet
- Your cash flow statement
Review them all. Getting this bird’s eye view helps you do two things. First, it’s essential for planning for 2022. If you notice your cash flow is trending in the wrong direction, you can step in to adjust. Likewise, if you see that your profits didn’t meet 2021 projections, you can pivot for 2022.
Secondly, looking over these reports as you wrap up the year helps you prep for tax filings. By scanning all three of the above statements, you’ll be alerted to any potential issues and can discuss solutions with your accountant before you’re up against the filing deadline.
Reconcile your accounts
You don’t want to get to early April and find out your books don’t balance out, so reconcile your accounts now. Your profits and funding (like money from investors or grants) minus your losses and paid-out dividends should equal the amount you have in your business bank accounts. If those amounts don’t balance out, it’s time to start looking into why.
End-of-year is also a great time to reconcile your accounts receivable. If you have an extensive list of outstanding invoices that are past their due dates, make it a priority to improve your collections processes in 2022.
Calculate your retained earnings
Retained earnings aren’t the same as the money in your bank accounts or your overall profits. Instead, they’re the amount of money you’ve brought in minus the amount you’ve paid out in dividends. Basically, retained earnings show what your startup has netted over the last year.
It’s totally normal for startups to post negative retained earnings, especially in the early years. But calculating this number on an annual basis gives you an excellent benchmark. Of course, over time, you want to move toward breaking even — and eventually turning a profit.
Look over your employee financials
Payroll and benefits can be the bane of a lot of startup founders’ lives. That’s especially true if you wait until April to discover that you haven’t been calculating FICA taxes correctly or accounting for taxable fringe benefits like an employee’s personal use of the company car.
Look over all of the benefits you’re offering and make sure you understand the tax implications of each. Then, review your payroll calculations to double-check that you won’t have any headaches with the IRS come tax time.
Break out your to-dos on a calendar
Are you feeling overwhelmed? Wrapping up your year-end books can require a lot of your time and focus.
Fortunately, you don’t have to do it all at one time — and you don’t have to do it all by December 31. Break out your to-dos into bite-sized pieces, then schedule them on your calendar. A lot of these things can happen in January after the craziness of the holidays is over.
Also, set the necessary deadlines with your team before you plan to sit down to organize your books. You might set a hard date on getting all of their expenses in for about a week before you plan to finalize your 2021 expenses, for example.
As you check off tasks this year, consider setting deadlines for your 2022 to-dos. If any of these things felt new or complex, you might want to make notes in the calendar event that will help you remember what to do next year.
Over time, these recurring calendar reminders can make your year-end accounting tasks feel more familiar and predictable, ultimately making them more manageable.
Sit down with your accountant
Last, but perhaps most importantly, schedule some time to look over your year-end financials with your accountant. Bring your income statement, balance sheet, and cash flow statement. And if you had any questions come up as you went through the above steps, bring the necessary documentation to review the details with your CPA.
Your accountant can partner with you to resolve any issues and plan for maximum deductions when filing your 2021 taxes. Meeting with them for an end-of-year review sets you up for an easier and less financially painful filing season in 2022.
CPAs are at their busiest from January to April, so you probably want to set up your appointment with your accountant before this calendar year wraps up. After your year-end wrapup meeting, it’s a team effort with your accountant to make tax season go smoothly.
As the year comes to an end, our certified, startup-focused accountants are available to help with your year-end review. For accounting expertise that can help your tech company thrive in the coming year, contact us today.