By Mike Jesowshek, Special AFS Contributor
Can you believe that we are already coming to the end of another year? Before you know it you will be eating Thanksgiving dinner and Christmas shopping. This means that NOW is a perfect time to start preparing your books for year-end. The last thing you want is to be scrambling when time is tight.
Here are some things to consider:
Get Your Bookkeeping Updated
You complete your bookkeeping every week so that your books are always caught up, right? If so, hats off to you, however, if you are like 95% of business owners I talk to you have a bunch of uncompleted bookkeeping. The best thing you can do is tackle all of that back work now. Bite the bullet and get it done so you do not have even more data to sift through during the busy Holiday season.
Bookkeeping is not just for tax purposes, bookkeeping is an amazing tool to see how your business is doing and see things you can adjust to perform better. We had a new client that never did bookkeeping so we completed 8 months of back bookkeeping and showed them the financials. After going through the financials we found over $780 per month in recurring subscriptions that they have not used for years. Without doing their bookkeeping they would not have recognized this.
I often hear, why do I need to do bookkeeping, I just monitor my bank account to see how well I am doing. This is a poor way to see the health of your business and it is just a number and gives you no story. Of course, use bookkeeping to provide accurate financials for tax reporting and determining estimated taxes that need to be paid but above that, use it to see how your business is performing and recognize adjustments that can be made.
Monitor Activity and Gather W9s
Once you have your bookkeeping caught up, monitor the activity in your business and see if there are any things you can do to be prepared for taxes. See if there are expenses or reimbursements that can be made to help lower your income for tax purposes. With completed financials, it might be easy to see regular business expenses that may be missing.
...use bookkeeping to provide accurate financials for tax reporting and determining estimated taxes that need to be paid but above that, use it to see how your business is performing and recognize adjustments that can be made.
Check your expense accounts and see if there is any unnecessary spending that is being done that can be cut to put more money in your pockets. Monitor and project your profit so you can be prepared for a possible tax bill and pay any estimated taxes if applicable.
Look into payments that you have made to contractors throughout the year and make sure you have a W9 on file for them so you can easily prepare 1099s at year-end. Remember to try and always grab a W9 before paying a vendor so you do not have to try and chase them down later. In general, if you have contractors/vendors that you paid a total of $600 or more to, you will have to send them a 1099.
Verify Balance Sheet Balances
The balance sheet is the heart of your financials. Often times you can tell if bookkeeping was completed incorrectly by looking at your balance sheet. Do a formal bank reconciliation and balance check to ensure all bank and credit card account balances on your books match what is showing on your actual statements. If they are off, then that likely means one or multiple transactions are missing.
Look at your other assets, liabilities, and owner draw/contribution accounts and make sure that the activity is accurate within those. If you have a loan it should match the principal balance on your statements, be sure that interest is broken out.
This part can get a bit more complicated so definitely reach out to a professional if you are running into any errors and are unsure what to do. It is not worth spending a bunch of time working in circles when a professional may be able to find the issue right away.
Whatever you do, now is the time to act and get on top of your bookkeeping!
More from this author:
How Fitness Businesses Should Prepare for Year-End Tax Items and Tax Season
Understanding Sales Tax for Fitness Studios
Independent Contractor or Employee - How to Pay Them Correctly
Avoiding an IRS Audit as a Fitness Studio Owner
Mike Jesowshek, CPA is the founder of the accounting firm JETRO and Associates. He has a strong passion for both fitness professionals and technology. He helps provide a digital accounting, bookkeeping, and tax solution for studio and gym owners who are looking to take it to the next level by utilizing modern, cutting edge technology.
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