Starting the New Year right means properly closing out the previous year’s finances. Here’s a checklist to follow.
Reconcile Bank Accounts
Reconcile all bank statements, credit cards, and other accounts. Proper reconciliation ensures these accounts match year-end statements.
Run Profit & Loss Statements
Be sure profit & loss statements are categorized correctly. This is much easier if your agency uses accounting software designed for the advertising industry. If you are using bookkeeping software or doing manual entries, it is wise to get assistance from an accounting professional.
Evaluate Accounts Receivable
Send year-end invoices, and confirm what invoices have been paid. If your accounting process is manual, it’s easy to overlook unpaid invoices, so carefully check records. This ensures that you haven’t under or overstated income for the year.
Analyze Fixed Assets and Depreciation
Record large fixed asset purchases made in the past year on your balance sheet. Confirm the current inventory of fixed assets, and record details of sales, disposal, or depreciation. If you feel uneasy calculating depreciation, get help from your accountant.
Confirm Sales Tax is Correct
The 2018 Wayfair decision brought big changes to sales tax law. Out-of-state businesses are now required to pay sales tax if financial nexus has been met. Liability varies from state to state, which complicates matters. States are becoming more aggressive collecting from out-of-state vendors by conducting audits. Review sales records for every state and be sure sales taxes are correct. If you do not use an accounting system that automatically determines sales tax liability and calculates what is owed, consult an accountant to ensure compliance.
If you’re like most agencies, you used freelancers in the past year and must fill out the proper forms to correctly report how much they were paid. 1099 forms must be sent to independent contractors by the end of January. Ad agency accounting software processes 1099’s in minutes.
Close Out Equity Accounts
Equity accounts should be closed out to your retained earnings account. Accounting software simplifies this process, but you may choose to use an accounting professional to do this.
Review the Previous Year
Run these reports to determine where you were most profitable and what needs improvement. The information they show will be actionable results.
Also known as the Profit and Loss (P&L) statement, its basic equation is Revenues – Expenses = Net Income over a period of time. If you establish agency goals for revenue and expenses, you’ll have a benchmark for comparison.
Client and Job Profitability
Analyze the income each client represents and consider the time and resources you put into each of them. If some have a much lower profit margin when you consider the amount of time employees must spend to maintain them, it may suggest a need for higher rates or a retainer for the client. For more details, break it down by job to determine job profitability. Are the results less than expected? You may be underbidding. This may also be a symptom of needing to streamline your agency processes.
Employee Utilization, Productivity, and Realization
Were you over or understaffed last year? Employee Utilization shows the percentage of a staff member’s available time spent on billable projects. For example, if an employee had 180 eligible hours in one month and spent 90 hours on billable projects, their utilization rate is 50%. For further details, look at the productivity of each employee by comparing their billable hours goal to actual time spent on billable jobs. For Realization, include billed amounts to show time against fees and commissions.
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Find out how Advantage can help you by contacting us for a complimentary demo or discussion about your unique needs.