The end of the year for your business serves as a valuable opportunity for reflection.
- How did my business perform? Did I make enough money to do all the things I wanted? Or rather did I keep enough of the money we made?
- What should I be thinking about as we start the new year?
- Should *gestures wildly around* all this – be so hard?
But before we even get to all that, it’s important to know how to tie up loose ends and close your books properly. And by you, we really mean a capable finance team that should be dealing with all the nitty gritty.
This same team, the ones who manage your accounts receivable, should also be able to provide insight into what’s working at your agency and what’s not. You need the technical and the strategic to-dos of closing out the year covered.
In this article, we’re going to give it to you straight:
- The 3 Things Your Finance Team Should Be Doing
- How to review your current financial health
- Why regular financial check-ups matter
- The step-by-step checklist to closing out the books
(If you have had just about enough of *all this*, say firstname.lastname@example.org and we can help you through it.)
1. Start on The Right Foot: 3 Things Your Finance Team Should Be Doing
Before diving into new projects, your finance team needs to lay the groundwork to usher in a new, successful, year. Here are three essential tasks to kickstart the year:
Tie Up Loose Ends for The Current Year:
- Ensure all completed work is billed and close finished jobs.
- Have old receivables with clients that haven’t been paid? If there are, assess whether they are collectible, or if they should be written-off. Have a bunch of small balances sitting on your accounts receivable or accounts payable report too? Now’s the time to deal with them.
- Accurately capture revenue, adjusting for work completed to avoid recognizing revenue for unfinished tasks.
- If you do cash accounting, it’s especially important to make sure you are adjusting revenue for work that has not been completed yet.
- That revenue should be deferred to next year. Make sure you are giving credit where credit is due, and not mistaking gross billing for earned revenue.
Perform a Reasonability Test:
- Review financials for missing costs, unusually high expenses, and discrepancies in revenue and profit.
- Are there any large costs missing?
- Any expenses look strangely high?
- Is your revenue and profit what you expected?
- Consult your accountant to investigate any anomalies.
- If you think something fishy is going on, ask your accountant to review the details of specific transactions to see where things may have gone awry. Often the cause of high or missing costs is that a transaction has been miscategorized.
2. Review Your Current Financial Health
Once the year is neatly closed, it’s time to assess your agency’s financial health:
- Study Key Performance Indicators (KPIs):
- Analyze metrics like revenue per full-time equivalent (FTE), staff cost, and overhead ratios.
- Generally speaking, staff costs and rent should be an agency’s biggest expenses. If you manage your staff costs and your overhead expenses well, your business is unlikely to have a profitability problem.
- Assess Client Contributions:
- Identify clients contributing the most revenue and profit. Does the cost of doing business with some of these clients outweigh the revenue? On the flipside, does any one client contribute more than 25% of your overall revenue? Both are risky scenarios and need to be addressed.
- Based on this reflection, be ready to make some informed decisions about client relationships and profitability.
- Plan for the Following Year:
- Budget for the new year based on revenue by client, staff costs, and overhead expenses.
- Consider staffing adjustments, skill development, and potential business investments. Is it time to increase your staff number, or add new roles? Depending on your profitability, you may also consider developing your current employees or investing in marketing your business. Even agencies who aren’t interested in growing in the new year, who are happy with their size and capacity, can still invest in their team.
3. Financial Fitness for Your Business: Why Regular Check-Ups Matter
Businesses that consistently review their financial performance have a better chance of hitting their goals. The catch? Many financial teams lack the expertise or resources to do this effectively. It boils down to where your team’s strengths lie. Without experience in agency work, they might miss crucial KPIs and struggle to spot potential issues.
Moreover, weak leadership in your accounting team can lead to inefficient processes in billing, collections, payables, cash management, and financial planning. Gaps in capabilities or technology might be the culprit.
Enter the Outsourced Accounting Solution.
If your in-house finance team falls short, consider a “contact a remote accounting firm” resolution. Think of it like hiring a personal trainer for your business’s financial fitness. Instead of relying on an overwhelmed in-house team, you’ll benefit from an agency-specific accounting team—your financial problem-solvers at a fraction of the cost.
A Step-By-Step Checklist For Closing Out the Books
Your success in the next year depends on how you close out the last. Here’s a step-by-step checklist for your finance team that covers everything from billing to budget. Download here!
We’ll be working with our bookkeeping and financial reporting clients so they can have peace of mind that all their hard work this year will be reflected in accurate, timely financial information, and a fresh start awaits them in the new year. If you are ready to ditch the overwhelm, let us know.