Wrapping up 2021

As we close this year out, we should begin to reflect on how our business grew, or sadly may not have grown, to our aspired goals. Either way, we need to start thinking of the steps we should take to make sure all of the loose ends of 2021 are tied up, so we can start concentrating on 2022.

I wanted to take time with this year-end article to share with you a winning strategy that you can put together (no, it’s not too late!) to wrap up 2021 with all the knowledge, facts and numbers that you will need to know at tax time and beyond.

Accounting

It’s vital to set a goal to complete a monthly accounting process for 2022 and work towards pulling all of 2021 together. Take it in small, measured chunks—try for a month a day.

Here are a few things that we suggest doing, especially in December of this year:

Review your 2021 monthly records
Evaluating your 2021 records to confirm they are accurate and clean is essential to success in the present and future.

We encourage you to set up simple financial reports where you can enter your data. Create an income statement, a balance sheet, and a cash fl ow spreadsheet based on monthly data.

Then pull data from previous years into the fold; this helps you see a clearer picture of the gains and losses over the years.

There’s no need to reinvent the wheel because many well-known accounting apps have done-for-you templates that will make quick work of your monthly accounting needs.

Income statement

The income statement, or the profi t and loss sheet, is the bedrock to understanding your profi ts. It helps you accurately see where you stand financially and what you need to improve on in 2022 to meet your financial goals.

Low profits? What areas can you tweak?

Do you need that high-end app when a lower-cost one will do? How about those monthly subscriptions you never use? Come on, I know you have them.

On the other hand, if your profi ts are record-setting, you might want to consider a big-ticket purchase that could be recorded as future depreciation.

If you would wait until the upcoming year of 2022, you will have to wait longer before claiming depreciation.
Here’s a great tip: Always seek your accountant’s advice when it comes to big-ticket items. He or she will help you analyze whether the purchase will leave you cash-strapped and how you can maximize its depreciation value.

Cash flow statements and balance sheets

Next up, let’s talk about cash flow statements and balance sheets! This is probably an area that keeps you up at night, right? Relax…I’m joking.

A cash flow statement records how you spent

your money throughout
the year.
Cash outflows are considered business expenses, of which you probably have many. Cash inflows are commonly known as income. The ultimate goal is to have more cash coming in than going out.

But, if you wait until the end of the year to create your cash flow statement, you may overlook how the cash trends in your business because you’ve missed the small, subtle cash flow changes.

And let’s face it, bad news never gets any better when you wait or procrastinate. It usually gets worse. Nipping the problem in the bud sooner allows you to correct course, pivot and avoid financial downturns. If you’ve waited too long this year, learn to start next year.

Another power tip: Net cash outflow doesn’t always tell the story about a cash flow problem on the horizon. It only becomes a problem when the outflow exceeds the inflow.

To evaluate cash flow, separate cash flows into 3 specific activities:

• Investments – both purchased and sold

• Operations – expenses and revenues

• Financial – loans and repayments

Don’t forget that the cash flow formula adds a beginning cash balance with net changes to each activity to calculate the end cash balance.

Verify, reconcile and double-check

Make sure you verify vendor information at the end of the year. Purge inactive vendors and/or inaccurate information.
Accounts receivables: Review your outstanding receivables and attempt to collect past-due payments before the end of the year. Not getting paid on time is one of the biggest cash fl ow pain points.

Stay on top of any issues or corrections that need to be made. Double-check your payroll before year’s end. Make sure you’ve accounted for fringe benefi ts such as sick pay, company care, educational reimbursement, health and life insurance, and transportation subsidies.

Information technology (IT) Make sure your IT ducks are in a row for the end of the year. Back up your data, organize your files and data, and make sure your systems are updated to the latest version.

Starting the new year Before you start the new year, update your business goals. Examine your financial statements, customer/client feedback, and input from your team, so you can assess your current goals. Did you accomplish what you set out to do? Use last year’s information and your upcoming goals to create an action plan to help you achieve each and every goal.

Is delegating part of your goals for 2022? Every CEO has a team they rely on; why shouldn’t you? Give us a call to discuss your goals and how we can help you in 2022.