How to Wrap Up Your Fiscal Year and Start the New One Right

How to wrap up your fiscal year (and put a bow on it)

Here’s how to make sure the home stretch of your fiscal year goes just about perfectly.

Review and revise your financial records to ensure accuracy

Year-end closing requires you to review and reconcile all your business’s transactions and records and check that everything adds up. That includes (but certainly isn’t limited to) your income, revenue, expenses, investments, equity and assets. Naturally, then, the first step in wrapping up your fiscal year is to go over your financial records and revise them as needed for accuracy.

Your accounting team should go through your accounts payable (A/P) and accounts receivable (A/R) and look for discrepancies. If team members find any gaps, they should contact the employee to whom the transaction pertains. The employee must then provide information that shows why there’s a discrepancy. From there, the accounting department can rectify any mistakes and ensure that your company’s general ledger is consistent and correct.

If this sounds time-consuming, that’s an understandable response — but with accounting software, it’s actually quite easy. Software like QuickBooks Online offers an extensive reporting suite that generates general ledger, A/R aging and A/P aging reports that summarize all transactions for the entire fiscal year. With all these transactions in neatly organized rows and columns, identifying discrepancies takes just minutes instead of hours.

Identify any necessary year-end expenses

Ask yourself whether your business has been delaying any necessary purchases. If so, make these purchases before your fiscal year draws to a close. This way, your business can write off qualifying expenses as tax-deductible for the current fiscal year.

Using your fiscal year’s home stretch to make key purchases is especially smart if your income reached new highs compared to last year. If your income was limited this year or if you truly don’t need to buy anything, though, don’t feel like you have to. Yes, lowering your taxable income is great, but so is not spending money when it’s not truly necessary.

In any case, for any purchases you do make, keeping your receipts on file is a must in case of a tax audit. If you’re short on physical or digital storage space, discard receipts for expenses under $50, but try your best to keep all your receipts. As you sort your receipts, use software like QuickBooks to categorize all your expenses and allocate them to the correct accounts, such as travel and office expenses.

Calculate your depreciation

During a fiscal year, your business furniture, vehicle fleets, buildings, equipment and machinery may gradually deteriorate, undergo wear and tear or become obsolete. The resulting financial loss is known as depreciation, and it’s a tax-deductible expense that’s always worth determining.

That said, calculating depreciation is a notoriously complicated process, so leave it to your accounting team members. They have the specialized knowledge and training to navigate the complexities of depreciation-related math and figure out which items are indeed depreciable.

Get your tax documents in order

Take the time now to gather and organize your tax documents. You’ll avoid rushing to do so on Tax Day and thus reduce the likelihood of erroneous forms and submissions.

The tax documents to prioritize include your IRS W-2, W-3, 940 and 941 tax forms, which you must deliver to the IRS as soon as possible. They also include your 1099-NEC forms, which you must send to the IRS and any independent contractors whom you paid $600 or more during the fiscal year. QuickBooks Payroll entirely handles this all on your behalf.

Check your inventory records

This step applies if your business sells products rather than offering a service. Your goal is to verify that your inventory records line up with your actual stock counts. If you’ve been properly using inventory management software or QuickBooks Online, this task should impose a minimal burden since you’ve already automated the addition and removal of stock from your system. If not, schedule ample time for manual stock counts as part of your year-end plan.

How to start off the new fiscal year with a bang

As you put a bow on your current fiscal year, you should get ready for a successful new one. Here’s how to do that.

Review the previous year’s financial performance

Every fiscal year abounds with successes and mistakes that your accounting department is in an excellent position to analyze. Your team will know to generate reports such as your balance sheet, income statement, and cash flow statement to assess how your business performed this fiscal year. They’ll also know how to forecast how key financial wins and losses might apply to the coming year. QuickBooks Online includes numerous tools to cover all these bases.

Set a budget

Within the broad realm of forecasting, budgeting is perhaps the most important to-do list item. It starts with a target amount of total spending for your business based on your spending in the previous fiscal year. Any sales you’re expecting to make in the coming year may also shape your projected spending — with more revenue, more spending is possible.

Your spending projections should be broken down into categories including but not limited to wages, marketing and ongoing fees for business service subscriptions, and this is easy to do with QuickBooks Online. You may also want to budget for putting enough money aside so that you always have at least three months’ worth of your typical spending on hand. This way, you can cover unexpected emergency expenses in the new fiscal year. 

Determine goals and key performance indicators

Growing in your new fiscal year is easier when you have a roadmap for what success looks like. Sketching out this roadmap begins with assessing how close you came to achieving your previous year’s financial goals. Building from the goals you reached into more ambitious benchmarks, and making milestones you never reached more realistic, is the name of the game here. 

Your targets for the new fiscal year should be SMART goals: specific, measurable, attainable, relevant and time-based. Examples could be reaching $250,000 in sales in your first quarter — but only if you reached $200,000 in sales in Q4 of your previous fiscal year. The sales volume in this goal is a key performance indicator (KPI), and tracking KPIs makes you much more likely to reach your growth goals.

Even if your goals feel completely attainable, breaking them down into shorter-term goals can make the path forward more manageable. For example, that $250,000 in Q1 sales can seem more doable when broken down into $20,000 in sales per week. Or, for goals that are inherently short-term, just keep them as is — over-structuring can sometimes feel too constraining.

Consider your vendors and suppliers

It’s often easier to start conversations with potential new vendors and suppliers when they’re reassessing their budgets. And just as you’re budgeting ahead of the new fiscal year, potential new vendors and suppliers are too. Now is thus an ideal time to review how much you pay your vendors and suppliers. If you need to cut costs, new suppliers may be more open to details that save you money while inching them closer to their sales goals. 

That said, if you’re already enjoying excellent relationships with your vendors and suppliers at reasonable rates, skip this step. A potential new vendor or supplier that costs less might not deliver the quality of service and care that you get from your current providers. There’s another way to maximize your business outcomes as the fiscal year kicks off instead.

Assess whether you need new equipment

If you’re in the market for new equipment or expect to be within the next year, make sure your projected spending can cover your equipment costs. If not, look for areas in which you can cut spending in your new budget to justify buying new equipment. Or, if you truly can’t find the money to spend and your equipment will still suffice, skip this step for now. There’s always the next fiscal year.

One fiscal year ends, another begins

There’s a lot to get done as you transition from one fiscal year into another, but with your accounting team’s help and powerful software like QuickBooks in your tech stack, you’ll get it all done. Plus, the transition between fiscal years is an exciting time. Put in the time and effort to close out your previous year effectively and launch your new one properly, and a whole new world of achievements could be ahead.