Fiscal year-end close dates look a bit different for every organization. However, the top of the year always presents a good opportunity for subcontractor billing teams to take proactive steps in managing their financial and operational obligations.
To get you started, this year-end checklist includes essential steps for staying organized and effectively closing the books with minimal hair-pulling.
What is a year-end close?
For those new to the accounting ranks, year-end close refers to the process of finalizing all financial activities and closing out all accounts from the past fiscal year. It involves completing a variety of monetary and operational functions (many of which we’ll discuss below) to ensure your ledgers are balanced. This process concludes with preparing a comprehensive annual financial statement, which is stored in your company’s financial records and serves as a critical piece of documentation in the event of an external audit.
Year-end close is essential for subcontractor billing teams as it allows them to:
- fulfill their obligations,
- identify discrepancies or issues, and
- establish a solid foundation for a successful start to the new fiscal year.
What makes year-end closing such a pain?
End-of-year preparations add to the already substantial workloads that accounting professionals routinely manage—tracking down lien waivers, managing change orders, submitting pay applications, updating schedules of values, you get the picture. They also come with their own unique set of challenges, further intensifying what’s already a tedious process. Some of these include:
- Spreadsheet-reliant workflows: Spreadsheets are fundamental tools in accounting, but they’re not easy to scale across a year's worth of projects. They also require a lot of manual upkeep, which takes up valuable time and increases the risk of errors—all of which can come back to haunt you during the year-end season.
- Missing invoices or receipts: There are countless incoming and outgoing paper invoices and receipts that need to be tracked. If just one of these documents is misplaced, expense reconciliation and related tasks are delayed until it’s found.
- Poor communication: Relying on paper and spreadsheets also creates communication barriers within the team. Accountants frequently find themselves in the position of having to track down employees for essential documentation or clarifications regarding specific transactions.
- Regulatory compliance: The end of the fiscal year may bring new regulatory changes that subcontractor billing teams must navigate. Staying updated with relevant regulations and adjusting billing practices accordingly can be a significant challenge during the year-end close.
What steps can you take to make year-end closing easier?
One of the easiest ways to simplify year-end closing is to establish a clear process. After all, an ounce of prevention is worth a pound of cure, especially considering that it takes the average accounting team 25 days to close out the year.
Here is a checklist to ensure your end-of-year closing activities run smoothly and set a strong foundation for the upcoming year.
1. Develop a realistic closing schedule—and stick to it.
Developing a well-defined and realistic schedule is crucial for a successful year-end close. Start by gathering your team and understanding their workload. Then, build a strategy with achievable milestones to execute your plan. By creating a calendar with target dates, you can:
- Help everyone stay focused.
- Ensure that each step of the process receives the necessary attention and priority.
- Facilitate the timely completion of tasks.
- Minimize delays and complications.
Most of the items on this list should be included in your calendar as action items.
2. Reconcile all financial accounts.
Conduct a thorough review and reconciliation of all accounts, including:
- Bank Accounts: Verify that all recorded transactions (e.g., deposits and withdrawals) match your bank statements.
- Accounts Receivable (A/R): Review A/R to confirm that all outstanding invoices and receivables are accurately recorded. This process may involve verifying the aging of receivables, identifying any overdue payments, and addressing discrepancies. (Check out our A/R escalation blog post for tips on following up on payments.)
- Accounts Payable (A/P): Similar to A/R, this step involves reviewing and confirming the accuracy of outstanding payables. This also involves ensuring that any accrued business expenses or liabilities are accurately recorded and accounted for.
- Balance Sheet Items: Conduct a comprehensive review of all balance sheet items, such as assets, liabilities, and equity. Verify the accuracy of reported values for assets like property, plant, and equipment (PPE) and liabilities like loans or mortgages.
- Income Statement Items: Assess income statement items, including revenues, expenses, gains, and losses. Ensure that all revenue recognition principles are followed and that expenses are correctly recorded in the appropriate accounting period.
The purpose of this step is to guarantee the accuracy and reliability of your financial records. This involves identifying and correcting any inconsistencies, such as variations between actual and recorded amounts, missing entries, and errors in categorization.
3. Examine accruals and deferrals.
Review and (if needed) adjust all recognized revenue and expenses so that they’re recorded in the correct accounting period—regardless of when the actual cash transaction took place.
For example, say your company completes a significant portion of a construction project in December, but the general contractor (or owner) isn’t scheduled to make the payment until January of the following year. In this case, the subcontractor's billing team needs to review and adjust the accruals to recognize the revenue for the work done in December, even though the payment will be received in January. This adjustment ensures that the financial statements accurately reflect the subcontractor's actual performance in the correct accounting period, providing a more realistic picture of the company's financial position at year-end.
4. Assess all tax obligations.
This step is a three-parter:
- Assemble all necessary documentation, such as income statements, expense records, tax liabilities, and other supporting documents.
- Complete and submit the appropriate tax forms, such as individual or corporate income tax returns, in compliance with tax regulations and reporting standards (which includes filing these documents by their deadlines).
- Review and reconcile tax records to identify and correct any discrepancies or errors.
For additional tax assistance, check out CFMA’s Content Hub. It offers a ton of tax planning strategies and resources to support your year-end preparations.
5. Conduct a thorough inventory assessment.
At the end of the business year, your team should conduct a physical inventory count to determine the actual quantities of materials or equipment on hand. Compare this count with the recorded inventory balances to identify any discrepancies or variances. If discrepancies are found, you’ll have to do some digging to find a resolution and adjust inventory records accordingly. This step also allows subcontractors to review and update their inventory valuation methods.
6. Review insurance policies.
Subcontractors should prioritize reviewing their insurance policies on an annual basis. This proactive measure is especially crucial during year-end activities, as it enables you to evaluate and strengthen your risk management strategies, ultimately safeguarding your company's financial stability. The review process involves confirming the coverage types, policy limits, and expiration dates.
7. Prepare an annual financial statement.
Year-end close activities typically culminate in preparing an annual financial statement, which includes key documents such as:
- Balance Sheet: This provides a snapshot of the organization’s assets, liabilities, and equity at a specific point in time.
- Income Statement (or Profit and Loss Statement): This summarizes revenues, expenses, and profits or losses over the fiscal year.
- Cash Flow Statement: This details the organization’s incoming and outgoing cash flows, categorizing them into operating, investing, and financing activities.
These financial statements offer a comprehensive overview of your organization’s financial performance and position, allowing stakeholders—including management, investors, and external parties—a direct line of sight into the viability of your business. Additionally, these statements serve as a valuable tool for external audits and reviews, verifying the legitimacy of your company’s financial information.
8. Set goals for the upcoming year.
Creating an annual financial statement involves analyzing financial ratios and key performance indicators (KPIs) to gain insights into your financial health and performance. This analysis is crucial for creating budgets and forecasts, setting goals, and developing future growth strategies. These strategies may involve identifying new business opportunities, improving operational processes, or expanding into new markets.
Get ahead of next year’s closing preparations.
Using this checklist to plan your year-end close activities is a great start to setting yourself up for a successful new year. But why stop there? A billing software like Siteline can significantly assist with year-end preparations.
With Siteline's software, accounting professionals can:
- Work More Efficiently: Eliminate the reliance on error-prone billing spreadsheets, minimizing the risk of errors and saving valuable time.
- Organize Everything in One Place: Use a single system for better document management and communication, eliminating the need to track down essential information from coworkers.
- Stay Compliant: Track the status of compliance requirements for all of your jobs, ensuring payment is never held up due to expired items.
- Optimize Cash Flow: Leverage cash flow forecasting to get a clear picture of your company’s financial health and support future financial decisions.
If this sounds like something your company could benefit from, schedule a free demo of Siteline—and see how our software can give you a leg up on your year-end closing activities.