9 common year-end closing mistakes to avoid in 2024.

Preparing for 2024 year-end closing is a critical part of every company’s obligations, but businesses may scramble to prepare their financial statements and tax filings when the time comes. With so many other issues to deal with, there’s a tendency to wait until the filing period arrives and this can lead to costly errors.

Let’s look at nine common year-end closing mistakes companies make, along with practical solutions to avoid or fix them quickly. By taking a proactive approach, you can enhance your financial processes and reduce stress for everyone.

mistake 1: not setting priorities

key solutions:

Create a checklist for fiscal year-end tasks and stick to it. This is essential for a smooth and efficient closing. A checklist helps organize and prioritize activities, which minimizes the chance of missing important steps.

Once implemented, your checklist acts as a valuable reference for future year-end preparations: you can adjust the list to what worked well and what didn’t, providing a solid template for the next year and beyond. Ultimately, a well-organized list can increase accuracy and help ensure your company complies with financial laws and regulations.

mistake 2: waiting until the last minute

key solutions:

Putting off year-end tax planning until the last minute can lead to increased stress and a higher chance of errors due to the pressure of completing important tasks quickly. It also limits your options for tax-saving strategies, as many require action before the year ends. Additionally, waiting can mean missing deadlines, which can result in penalties or lost deductions.

To avoid these issues, start your tax planning early in the year, ideally in the third quarter, to give yourself enough time to get it right. Work with a tax professional year-round to identify opportunities and ensure compliance with changing regulations. Or consider hiring a temporary finance professional to support your team when you need it most.

mistake 3: failure to reconcile accounts

key solutions:

As with the solutions above, planning is key here, too. Use automated reconciliation tools like BlackLine, FloQast or QuickBooks to streamline the procedure and reduce the risk of errors. Set up a clear system of checks and balances, with different team members responsible for preparing and reviewing reconciliations. Address any discrepancies or unusual items immediately, rather than letting them accumulate.

Examples of accounts your finance professionals should be reviewing and the consequences of finding discrepancies, especially last minute, include:

• Bank accounts: Unreconciled bank statements and accounting records can distort cash balances, leading to financial misrepresentation and poor decision-making.
• Accounts receivable: Neglecting to reconcile outstanding invoices risks revenue loss and inaccurate financial reports, and can potentially mislead stakeholders and others.
• Accounts payable: Not matching vendor statements with what you owe can lead to higher reported expenses, which can distort financial statements and budgeting.

mistake 4: manual entry errors

key solutions:

Invest in accounting software that can automate data entry and reduce the risk of human error. Use double-entry accounting practices and regular reconciliations to catch and correct errors promptly. Consider using optical character recognition (OCR) technology to accurately capture data from physical documents. Train or hire staff on proper data-entry techniques and establish a system of checks and balances to verify the accuracy of entered data.

mistake 5: missing documents

key solutions:

To avoid panicking when calm is needed most, consider using a strong system for tracking and storing financial documents all year long. Using digital receipt capture and expense management software, for example, ensures receipts and invoices are properly recorded and easily accessible. Define robust policies for employees regarding timely submission of expense reports and other financial documents.

mistake 6: improper revenue recognition

key solutions:

Establish clear guidelines for revenue recognition that align with accounting standards. Implement a system to track and properly account for deferred revenue, especially for businesses with subscription-based models or long-term contracts. You should also regularly review and update revenue recognition policies to ensure compliance with changing regulations. Here, too, using specialized revenue recognition software can help.

mistake 7: poor communication

key solutions:

Create a centralized communication platform for all year-end closing activities. Clearly define roles and responsibilities for each team member involved in the fiscal closing. Remember to schedule regular check-ins and status updates to ensure everyone is aligned and aware of progress. Create a system for documenting and sharing important information, decisions and context related to financial activities throughout the year.

mistake 8: inadequate internal controls

key solutions:

Develop a comprehensive system of internal controls, including segregation of duties, approval processes and regular audits. Conduct periodic reviews of your internal control systems to identify and address any weaknesses. It’s also crucial to provide ongoing training to staff on internal control procedures and the importance of compliance. And if you use accounting software, as suggested above, make sure it has built-in control features to enforce policies and prevent unauthorized actions.

mistake 9: overlooking or miscalculating tax obligations

key solutions:

Without the support and advice of professional financial talent, it can be hard for companies to keep up with the frequent changes in tax laws and accurately estimate their tax liabilities. This can result in serious consequences, including:

• Financial penalties and interest charges
• Increased scrutiny and potential audits from tax authorities
• Legal issues and possible lawsuits
• Damage to reputation and credibility
• Cash flow problems due to unexpected tax bills
• Missed opportunities for tax savings and deductions

To avoid these problems, businesses should stay informed about tax regulations, work with tax experts regularly, and maintain accurate financial records throughout the year.