Preparing for Year-End Before January 1st Arrives

by Sharon Minnock

As a business systems consultant to construction companies, I approach year-end planning from a new implementation standpoint. Just as I help my clients prepare for new software before the installation, I also help them prepare for year-end before January 1st arrives. This is a very important focus for companies on new software, but the same process applies each year.

Every construction company must follow a basic set of procedures to close their books at year-end. The good news is, if you have the knowledge and tools to pull the basic information together ahead of time, not only will you have a happier new year, but you could help lower your CPA costs related to year-end auditing or tax report preparation.

Reconciliation: The Moment of Truth

Year-end processing is the culmination of all the work that’s been done during the calendar year. It’s the moment of truth that shows you whether your record keeping is accurate or not. For the construction company controller or bookkeeper, the best advice I can give is this: Take control of your year-end reconciling now so you know what’s in your system before you hand your records over to upper management, your tax accountant or an auditor.

The simplest way to do this is to print a copy of your trial balance and go down every balance sheet account and make sure that you understand – and can back up – every number through the end of November. If it’s a cash account, for example, have you reconciled your bank statements throughout the year? If you have fixed assets, are your associated invoices accounted for? Does your accounts receivable tie-in 100% to your aging?

Payroll reconciliation is a little more involved. Even if your company is on a fiscal year, at the end of the calendar year you’ll need to close out your payroll. By early December, you should have all of you quarterly payroll tax reports reconciled to the general ledger. This gives you a chance to catch errors early and avoid filing an amended payroll tax return.

Depending on the type of construction you do, an audit or tax return might require your company to do a year-end WIP report, create a list of completed contracts and/or determine your over-under billings. If your software is construction specific, generating these items should be relatively easy. If you’re using software such as Quickbooks, however, you may have to do more reconciling to produce the documents you need.

My key point here is to get the majority of your reconciling – and correcting if necessary – done before the end of the year. Although you will have to do a final reconciliation when your books are closed for the year, getting 11 months out of the way will make the final reconciliation fast and easy.

Other Ways to Plan Ahead

Although reconciliation is the biggest part of year-end planning, there are several other steps to take before your work is done. Here are the high points:

Vendor recommendations. Most software vendors provide their clients with a list of things they need to do at year-end that is specific to their product – like how to order W-2’s and 1099’s and procedures to follow for closing out the year. My advice? Heed this information and follow it to the letter.

1099 prep. If you produce 1099’s for subcontractors and so forth, now is the time to make sure you have all of the information needed to print them, particularly the appropriate tax ID’s.  

Error correction. If you have an accountant or bookkeeper that has been working on your books for years, errors are probably minimal. However, if you are on a new system it’s very common to have errors, especially if you implemented your new system mid-year and have two sets of books to tie together. Finding and correcting errors now will make your year-end processing smoother.

File clean-up. Year-end often provides you with an opportunity to clean up your software files. Take your employee file for example. With some software systems, if you indicate which employees are inactive or terminated, those employees will be removed from your active list, providing you with a cleaner employee file to begin the new year.

Following a Process

Early December is an excellent time to look at what’s currently being done for year-end, how to improve on current processes and how to correct what’s wrong. By getting the work done before it’s actually due, when January 1st rolls around, year-end will be a matter of following a process rather than a time of reconciliation.

Sharon Minnock is president of Minnock Consulting Inc. based in Denver, Colorado.   She specializes in helping contractors develop information technology plans and provides support and guidance for software selection and implementation projects. Sharon began her career as a CPA and has been a consultant within the construction industry for over 20 years. She is a frequent speaker at industry conferences and a regular contributor to construction trade publications. Sharon can be reached by e-mail at minnock@att.net or by phone at (303) 717-2527.