Closing the Year: What a Small Business Should Do Before the Books Shut

Most owners meet their year-end in March, when an accountant asks for records and points out the decisions that could have been made in December. Some things can only be done while the year is still open — timing a purchase, writing off a debt you've given up on, collecting a contractor's details before a filing deadline. The rest is easier while the year is fresh than after it's gone cold. This is the checklist, in the order it's worth doing.

The calendar that matters

When	What	Why then
Early in the final quarter	Book the planning conversation with your accountant	Options close with the year
Final month	Collect missing contractor details; review receivables	Easier before the holidays than after
Final days	Count inventory; make agreed timing decisions	Must reflect year-end position
First weeks of the new year	Reconcile year-end; prepare annual information returns	Deadlines fall early
Before filing	Review the numbers with your accountant	Last point to catch errors

The first row is the one owners skip. An accountant who sees the year in November can suggest things; one who sees it in March can only report them. Per our tax guide, the planning conversation is worth more than any other hour of the year-end.

Reconcile everything

Every decision below rests on the numbers being right, so this comes first.

Every account should agree to its statement at year end:

• Bank accounts — all of them, including the ones you rarely use.
• Credit cards, with every charge categorized.
• Loans and lines of credit, split between principal and interest.
• Payment processors, per our reconciliation guide — gross sales, fees, refunds, and chargebacks recorded separately, not as a single net deposit.
• Payroll accounts, including withheld taxes.
• Any personal account the business touched, per our separation guide — the business items in it need finding now, not in March.

Per our bookkeeping guide, an unreconciled account at year end means an unknown error in the annual numbers, and those numbers go to tax authorities and, later, to every lender who asks for your financials.

While you're doing it: look at the payee list. A year-end reconciliation is a natural moment to notice a vendor nobody recognizes.

Receivables: what you'll really collect

The part that changes what the business reports it owns.

An aged receivables list at year end frequently includes money that isn't coming. Carrying it overstates your assets and, depending on your accounting method, may mean you've reported income you'll never receive.

1. Run the aged list and look hard at anything past 90 days.
2. Make one last collection effort on anything worth it — per our collection guide, a direct call before year end sometimes produces payment that silence never will.
3. Document the efforts made on each doubtful account.
4. Decide with your accountant what to write off and how, per our write-off guide — the treatment depends on your accounting method.
5. Note which customers produced the losses, since that shapes next year's terms.

Item five is the one that pays next year. A customer who took 120 days and then didn't pay should not be on the same terms in January.

What you own

• Count inventory as close to year end as possible. Per our inventory guide, the year-end count drives your cost of goods, and an estimate in place of a count is an error with a direct effect on reported profit.
• Identify obsolete or damaged stock and discuss its treatment with your accountant.
• List fixed assets bought and disposed of during the year, with dates and amounts — depreciation depends on them.
• Confirm what's financed versus owned outright.
• Check deposits and prepayments you've made, per our supplier analysis — money paid for goods not received is an asset that belongs on the list.
• Check deposits you hold, per our deposits guide — money received for work not done is a liability, not income.

Contractors and payroll

The deadlines that fall earliest in the new year.

Annual information returns for contractors and employees are typically due early in the new year, and missing details are much easier to collect in December.

• List every contractor paid in the year, with totals — per our contractor payments guide.
• Check you have each one's legal name, address, and taxpayer identification, collected on the appropriate form.
• Note how each was paid, since some payment methods are reported by the payment provider rather than by you — confirm with your accountant which apply.
• Review classification — year end is a sensible moment to check that everyone paid as a contractor should be.
• Reconcile payroll — wages, withholding, and employer taxes — against what was deposited.
• Confirm employees' addresses for year-end forms.

A contractor who has left and won't reply is the common problem. Chase missing details now, while a new invoice or payment still gives you a reason to be in touch.

Timing decisions

The planning conversation, and where it tends to go wrong.

Some purchases and income can be timed to fall in one year or the next, and the rules on when they count depend on your accounting method and the type of item. That's a question for your accountant, specific to your business.

Two general points hold regardless:

• Spending only to reduce tax usually leaves you poorer. A deduction saves a fraction of what you spend. $10,000 of unnecessary equipment that saves $2,500 in tax costs $7,500 — per our cash management guide, cash you'd want in the reserve.
• Timing makes sense for purchases you'd make anyway. If the equipment was needed in February, buying it in December may simply change which year it counts in.

Also worth raising in the same conversation:

• Estimated tax payments — whether this year's were enough, and next year's schedule.
• Retirement contributions for the owner, where the structure allows — deadlines and rules vary.
• Whether your entity structure still fits.

The owner's side

• Total your draws or salary for the year and confirm they're recorded correctly, per our owner pay guide.
• Document any money you put in as a loan or contribution — undocumented transfers are hard to characterize later.
• Find any business expenses paid personally, which are only deductible if someone finds them.
• Review insurance ahead of renewals.
• Check continuity arrangements — signers, access, and who could act if you couldn't.
• Pull your commercial credit report, per our file guide, and correct anything wrong before you need to borrow.

Setting up next year

The part owners skip because the year is over, and it's where the close pays for itself.

1. Write down what made this close hard — missing receipts, a processor that didn't reconcile, a contractor with no details — and fix the process, not just the instance.
2. Build a budget from this year's actual figures.
3. Build a 13-week cash forecast, per our forecasting guide, covering the first quarter — which frequently includes tax payments and slow receipts.
4. Collect contractor details at onboarding next year, not at year end.
5. Close each month — a monthly reconciliation turns next year's close into a formality.
6. Set up records retention.

Item five does the most. A business that reconciles monthly has a year-end close that takes an afternoon; one that reconciles annually has a year-end that takes weeks and still contains errors nobody found.

Frequently asked questions

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This guide is educational and does not constitute tax, legal, or accounting advice. Accounting methods, the treatment of bad debts, inventory, depreciation, and deposits, information return requirements and deadlines, worker classification rules, and retirement contribution rules vary by business, entity type, and jurisdiction and change over time. Worked figures are stylized illustrations. Consult a qualified accountant before year end.