Year-End Financial Review Tips For Small Businesses: Ensuring A Healthy Financial Close

December 19, 2023

Year-End Financial Review Tips For Small Businesses: Ensuring A Healthy Financial Close
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Wondering how to finish the year strong as a small business?  

Running a small business means juggling between maintaining financial reports and tracking your coffee cup's location, all the while ensuring a smooth experience for the customers. And it's normal if things slip through the cracks.  

Fortunately, as you wrap up 2023, you have a chance to assess your entire year. This is where year-end financial review comes in.

Whether you're a new business owner or have been at it for years, the financial review is essential for making informed decisions and fueling your business's growth.

In this article, let's talk ten killer tips to perform a year-end financial review.  

Why Do Small Businesses Need A Year-End Business Review?

Taking a close look at your finances towards the end of the year is standard practice for all successful businesses. The reason? Evaluating the current year's performance enables you to plan better for the next year.  

You might discover inefficiencies or wasteful practices that need adjustment for better results next year. Moreover, your year-end financial review can also show how you can realign goals with available resources to enhance performance. It can even help you reveal opportunities to save money and boost profits in ways you might not have considered.  

As you'll see, organizing your finances as the year wraps up not only helps you stay on top of things but also provides clarity. If needed, it can put you back on the right financial track and even help proactively reduce your tax liability.

Key Components of a Financial Review

Let's discuss the key elements of a financial review:

  • Financial Statements: Statements like balance sheet, cash flow, and income are crucial for the financial health assessment of a business. They provide a snapshot of the company's assets, liabilities, equity, revenues, expenses, and profits over a specific period.
  • Revenue And Expense Analysis: They help examine revenue sources and trends of a company, review expense categories, and identify any significant changes.
  • Profitability Analysis: It helps measure and assess key profitability ratios such as gross profit margin, operating margin, and net profit margin.
  • Liquidity Analysis: Evaluate the business's ability to meet short-term obligations and examine liquidity ratios such as the current and quick ratios.
  • Risk Assessment: This involves identifying financial risks, such as market, credit, and operational risks, that can affect your business. Knowing what risks your company faces can help you create strategies to overcome them.
  • Budget Vs. Actual Review: Compare budgeted numbers with tangible financial results to identify variances and understand the reasons behind them.

Now that you know what a crucial year-end financial review is for a small business and its key components, let's find out how to perform it.  

10 Killer Tips to Conduct a Thorough Year-End Financial Review

Remember the adage: businesses that fail to plan are planning to fail. Not to mention, 20% of small businesses fail within their first year.  

Use this year-end financial review checklist to create a success plan by measuring key aspects for year-end planning and improved forecasting.

1. Make Sure the Accounts Are Reconciled.

Before you address other year-end issues, you must ensure that all your accounts and bookkeeping records are reconciled and up to date. This includes bank accounts, accounts payable, and accounts receivable. These financial records need to be reviewed routinely during the year and kept current, so you know your business's state. This helps you identify problems head-on before they start to snowball.  

Conduct a thorough review of your accounts – make sure they look right. Check for unpaid receivables or any outstanding bills you still owe. Make sure you agree with every item that has been recorded, purchased, accounted for, and paid.  

2. Analyze Your Financial Reports

With your books in order, the next step is to dig deeper into your year-end small business financial planning and management reports.  

Numbers don't lie. Your year-end financial statements can provide you with more clarity about the financial health of your business than your gut feeling. The year-end financial reports will not only show how much revenue your business produced but also how profitable it has been. Moreover, they will highlight areas that require adjustments.  

The three 'most' crucial financial reports include the income statement, balance sheet, and cash flow statement.  

  • Income Statement: Also called profit and loss statement, it breaks down your business income (revenue) and expenses for a specific period, revealing the overall profitability. If profits fall short, it pinpoints what expenses impacted your bottom line the most.
  • Balance Sheet: This report lists all your current assets, liabilities, and equity. It serves as a net worth statement, indicating whether your business is financially healthy or facing challenges.
  • Cash Flow Statement: This statement provides an overview of the cash flown in and out of your business in a specific period. This helps in assessing a company's financial health, from its liquidity to solvency and more.

Apart from these basic year-end financial reports, your finance department should provide relevant management reports. The financial health assessment of your business will empower you to make informed decisions for the upcoming year – maximizing revenue, minimizing costs, improving profit margins, and fostering overall success.

3. Review Cash Flow Statements

Conduct a downright cash flow analysis. Make sure to take a good look at last year's statements of cash flow.  

While reviewing, you should look for challenges like cash flow shortages you experienced this year and determine the potential reasons behind them.  

In addition, identify patterns that can help improve your cash-flow forecasting and strategic planning for the next year. Did your company experience a seasonal cash-flow shortage because of supply chain issues, slow demand, or other problems that might recur in the future? If so, devise a plan now to tackle these challenges so they won't appear down the road.  

4. Year-End Tax Planning & Strategy

With a keen focus on your taxes, check out where your company stands – expense-wise and income-wise – at the year-end.

Chat with your CPA or accounting team to explore last-minute maneuvers to reduce taxable income and enhance your company's tax situation before the year closes. For instance, you may claim a maximum depreciation or consider splitting income. You can also expedite expenses by making essential purchases before January 1st. If possible, delay invoicing customers until after the fiscal year and consider holding off on billing to improve your financial standing.

5. Reflect On the Company and Assess Last Year's Goals

Look at your finances and review your last year's goals honestly. Compare them to your budget and see how things played out. You can also talk to your advisor to dig deeper and plan effectively.  

Ask yourself:

  • Did you stick to your plan?
  • What were your wins?  
  • Where did you veer off course, and why?

6. Identify Any Shortcomings and Solutions

You have to find out what works and what doesn't.

If you determine any failures, pitfalls, or missed opportunities from the previous year, take some time to identify what exactly happened and why. This will help you pinpoint factors that hinder your company's progress.  

Think about ways to overcome these limitations in your business, including yourself. Then, find the most attainable solutions and plan to apply them in the next year.  

7. Consider Future Staff Needs and Year-End Incentives

At the year-end, you can see business growth and even set goals for the coming years.  

With this in mind, you should review your staff, identify positions you'll have to fill, and how the staff should grow to help scale your company. This helps you know when you need to recruit new employees to make sure they're trained and equipped to meet the new challenges head-on.  

Be sure to express gratitude to your team through public recognition and monetary rewards, and consider year-end gifts, parties, raises, and incentives for the upcoming year.

8. Set SMART Goals and Strategize

Small business owners often feel overwhelmed by the daily grind, forgetting that their business vision should extend beyond the immediate week.  

Armed with financial data and insights from the past year, year-end is the perfect time to set goals and devise specific strategies to reach them. Take a moment to envision your business's ideal future or a five-year plan (long-term goals) and how you will achieve them. It includes expanding your company’s line of business and shortlisting trusted financial assistance sources like Idea Financial to avoid incurring last-minute debts from untrusted sources. Don't forget to share this with your leadership team.  

Break down your long-term goals into short-term goals and collaborate with your team to create operational plans that align everyone towards the same vision. Make sure to document everything (you can use a business plan template for that), communicate the plan to your team, set deadlines, and establish a system to measure your progress.

9. Make a Budget

You can't plan and set goals in advance – let alone achieve them – if you don't budget for your company's future. Budgeting is important as it helps you keep track of your expenses and revenue.  

Here are a few business budgeting tips you should consider:

  • Start by evaluating the past year's budget and compare it with your real numbers
  • Make necessary adjustments  
  • Consider the goals you wish to accomplish and the financial resources you'll require. Add them to your business budget.
  • Plan to review your budget and other monthly statements to make the required adjustments.  

10. Evaluate and Enhance Your Leadership

Take a moment to review your business's past year and leadership style. Don't forget to engage your leadership team in this introspection.  

Assess your performance and pinpoint areas that genuinely need improvement, such as:

  • Time management
  • Communication
  • Workplace culture
  • Employee recognition
  • Financial acumen
  • Industry knowledge

Once you identify areas for growth, create a self-improvement plan for the coming year. Schedule dedicated time for ongoing learning and enhancing your leadership skills. Encourage your leadership team to do the same for personal and professional development.

After all, hindsight is 20/20. By introspecting your own leadership, you can have a better future for your business.

A Healthy Financial Close Equals A Year-End Triumph!

At Idea Financial, we understand that planning your finances at the end of the year is crucial for your business success. As fellow entrepreneurs, we know it can be daunting, especially if you're not a financial expert. That's why we're here to help.

Follow the steps we've outlined to the letter, and you'll be on your way to a perfect year-end financial review. And if, after your annual review, you find that your business could benefit from additional financial support, we're ready to help. At Idea Financial, we specialize in empowering businesses like yours with the tools they need to thrive.

We offer various financing options to assist your business in the next growth stages. Our revolving lines of credit, for instance, go up to $275,000, providing you with the flexibility and freedom to focus on growth. The best part? You only pay for what you use, and applying for it won't impact your credit report.

Let Idea Financial be your guide. We're here to help you leverage the insights from your annual review and to support you in reaching your long-term business aspirations. Together, let's turn the page to a new chapter of success and growth.

The information provided on this blog is for general informational purposes only and should not be considered as professional advice. While we strive to provide accurate and up-to-date information, we are not accountants, and the content presented here is not a substitute for professional financial advice. Readers are encouraged to consult with a qualified accountant or financial professional for advice specific to their individual circumstances. The authors and the blog owner disclaim any responsibility for actions taken based on the information provided.