For many businesses, 2020 has felt like it’s lasted eight years already. But we’re officially in the home stretch now as we approach the final quarter. September is the perfect time to prepare a soft close for your bookkeeping records as we get ready to bid 2020 a not-so-fond adieu.
If you’re ready to hand over your business bookkeeping needs, the team at Fisher Bookkeeping is here to help. We love serving clients whose businesses are growing and thriving. Are you ready to let someone take the books off your plate? Let’s connect and see if we’re a good fit.
By the end of September, you can start thinking about a soft close for your books. This procedure is an abbreviated version of a full end-of-year closing system. Here is a quick look at the difference between a soft and hard close for your business’ books.
Many larger companies must utilize a hard close regularly. In this procedure, a business finalizes all entries into its accounting records and closes the books. This step finishes the bookkeeping for that period, whether it’s the month, quarter, or year. And you won’t go back into the books to change anything.
Once you close for the year, it’s time to send the books to the CPA for tax filing purposes. A hard close is highly-detailed and takes significant time to make sure everything is accurate.
A soft close is a quicker process that eliminates several steps from the hard close version. It requires less time and effort but isn’t as accurate. This process also allows you to go back in and add data if needed.
A soft close allows you time to set goals and achieve before year-end and the hard close. These goals could include completing travel expense logs, saving for a pending tax bill, or buying equipment. Your business may want to decrease or increase inventory to better control how the hard close goes for the year.
As September ends, it is the perfect time to do an abbreviated closing of your company’s books. Doing this is tremendously helpful for your time management.
From February 1st onward, your CPA is going to be slammed with work. Doing a soft close at the end of the third quarter allows you to schedule time with your CPA when they are not yet so busy. You will have a chance to wrap up loose ends and learn about any tax law changes that may impact you.
Meeting with them early allows you time to ask questions and get any updated advice from them. If you have had changes in your business structure during the year, you will have the opportunity to discuss that and make sure everything is in good shape as they start to work on your return.
This is also a perfect time to discuss any upcoming changes for your company. If the coming year will involve any of the following situations, let your CPA know now:
By having this conversation early, you and your accountant will be able to plan effectively and reduce stress.
So, let’s dig into the nuts and bolts of your soft close. Here are the key pieces to pay attention to as you get ready to move into the new year.
Do you have employees with outstanding expenses? Make sure everyone has submitted their expense reports and that all reimbursements are up-to-date. Every business seems to have that one employee who is slow to do this step. Light a fire under them so that you can wrap it all up quickly.
Get all of your accounts balanced and reconciled. This plan will give you time to address any discrepancies in your books and avoid unpleasant last-minute surprises. If you have any catching up to do, now is the ideal time to get them all squared away.
If your business carries a physical product, it’s time to take inventory for your soft close. Generally, these will be excellent estimates rather than precision counts.
Do you have anyone who will need a 1099 from you? Generally speaking, any non-employee that receives $600 or more from your business during the year for rent or services must get a 1099.
As you prepare for your soft close, run your vendor reports to see who meets these criteria so that you can get a W-9 from them. Include anyone who has hit the $600-mark, as well as those that will hit the mark by the end of the year.
Trying to track down people to fill out their W-9 at the last minute can be stressful. And since your business legally must mail or deliver these by January 31st, it will ease your job significantly to handle as much now as possible. You can request that someone return a W-9 before you have paid them $600; you don’t need to wait.
Clearly, 2020 has not been business-as-usual for most companies. Whether your small business struggled or thrived, it’s unlikely that it completely escaped the impact of COVID-19.
If you received funds through the Paycheck Protection Program (PPP), it’s time to make sure you have applied for forgiveness. The lending institution you used to secure the PPP loan should have the forgiveness form available for you. Or you can access it directly through the Small Business Administration. You will turn the form into your loan officer at the bank where you received your PPP.
The loan amount needs to remain on your balance sheet as a liability until forgiveness is complete. Then it will move to “other income” in your bookkeeping records. You will likely need to pay state taxes on these funds.
You will treat an EIDL Advance the same way, as “other income.” An EIDL Loan, however, becomes a long-term liability. The unique nature of these programs and their regulations is another excellent reason to start early and connect with your CPA.
Are you tired of wearing all the hats in your business? If so, Fisher Bookkeeping is happy to be of service. We are a full-scale firm that takes pride in the privilege of helping fellow business owners.
We understand the work that goes into running a business, and we appreciate the value of outsourcing pieces that aren’t in your wheelhouse. Fortunately, numbers and accounts are totally in our wheelhouse. Reach out to our team, and let’s get you some peace of mind when it comes to your books.
Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).