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[Watch] The End of Year Checklist: Are You Prepared for 2021?

[Watch] The End of Year Checklist: Are You Prepared for 2021?

Written by 
Laura Knight
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Published: 
December 10, 2020
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[Watch] The End of Year Checklist: Are You Prepared for 2021?

2020 may have been a year of extraordinary circumstances, but some things have stayed the same: your business still needs to tackle the usual tasks for wrapping up the year, and preparing for the next one.

We recently sat down with our friends at Gusto to talk through what you need to do to get ready for 2021, including considerations around taxes, benefits, and more. We’ve covered the highlights below, and you can watch the full session here.

Remote Work

The shelter-in-place orders that hit most of the US this spring forced many companies to go all-remote – whether they were ready or not. This means a lot of companies shifted to an all-remote workforce without a plan in place…and many never developed one. This matters because a remote workforce can have implications for a wide range of business issues, from salaries to operations to taxes to benefits. 

Year-end planning is the ideal time to change that. While the recent vaccine news is encouraging, it’s probably wise to assume the COVID situation will remain unchanged for at least the first half of 2021. Even after the world starts opening up again, it may be some time before things fully return to normal. Remote work is probably here to stay for the immediate future.

As you sit down to plan for 2021, take the opportunity to think through and document official policies for remote work at your company. This includes things like expectations, communication channels, and company culture, as well as thornier issues like employees moving to other states. Even if your company doesn’t plan on remaining remote once virus restrictions lift, it’s a good idea to have these policies in place to remain “remote-ready” in case the situation changes.

At the same time, don’t forget about that light at the end of the tunnel. We may have some time yet before the COVID crisis is behind us, but it’s a good idea to start planning now for how things will look afterward. Think through questions like how to start a return to the office, and what your policy will be for workers who want to remain remote, so that you won’t be caught scrambling when the time comes.

Payroll

As the year closes, there are a number of payroll tasks that need to be wrapped up to ensure a smooth tax season. One of the most important is dealing with your W-2s and 1099s.

For your employees, you’ll need to issue W-2s early next year so they file their taxes. As this year closes, you’ll want to review the W-2 forms as soon as they become available to ensure that all information is correct. Double-check the basics for each employee – name, address, SSN, etc – and also confirm the payroll totals. For contractors, you’ll do the same thing with your 1099s. If you use a payroll solution like Gusto, they’ll handle this for you; if not, be sure to review the forms before sending them out to your workforce.

If your employees were affected by COVID-19, there may be additional considerations around reporting sick or family leave in line with the Guidance on Reporting Qualified Sick Leave Wages per the Families First COVID Response Act released by the IRS earlier this year. If you’re not sure what this means for you, your best bet is to consult a tax professional.

Benefits

Year-end means it’s time to decide which benefits to offer your employees in the coming year. This is a big decision, since the right benefits package can be key to attracting and retaining the right people to build your business.

If you had employees move out of state during remote work, this may be more complicated than in years past, since providers and plans available can vary by state. This is another area where it can be worth it to work with a professional to determine what’s right for you.

Budgeting

A comprehensive, well-constructed budget is a vital part of running any business – but it’s particularly vital in uncertain economic times. Your budget helps you identify what drives outcomes in your business, work out what you need to do to meet your operational goals, and of course avoid running out of cash.

Q4 is the time to start working on your budget for the upcoming year. We discuss how to build a good budget in much more detail in our Annual Budgeting Guide for Startups, but here’s a few quick pointers:

  • Use the best data available for forecasting. You want accurate numbers from your books, and historical data if you have it. 
  • Think through what business changes you expect, or what trends you expect to continue, and what the effects might be. This can help with estimating what’s likely to happen with your business over the next twelve months.
  • Plan for multiple scenarios, including a worst-case protracted economic downturn. You’ll want to consider how these different economic conditions would affect parts of your business like revenue, hiring, and customer churn.

Building an effective budget can be challenging, especially for companies without a lot of past budget experience. If you’re not comfortable doing it on your own, consider bringing in an experienced finance leader to help.

Closing Your Books

A crucial step in getting ready for taxes is closing your books and finalizing your financial statements for the year.  

In the close process, you (or your bookkeepers) review your books to ensure all the numbers are correct, and tie up any loose ends like outstanding contracts or uncollected revenue. Depending on how well you’ve kept up your books, the year-end close may be a relatively simple review – or it may be a protracted slog.

It’s critical to close the books before you begin your taxes. If your books are likely to need substantial work before closing, be sure to build in time for that work to get done before tax filing. A professional bookkeeper can help.

The best solution, of course, is just to keep on top of your bookkeeping throughout the year. The benefits extend beyond just avoiding a taxtime crunch – the insights you gain from high-quality financial statements actually make it easier to run your business year-round.

Taxes

If you’ve previously filed business taxes, odds are you have a tax preparer. But if you don’t – or if you’re looking to make a switch – now is the time to start finding one. 

Keep in mind that even if your business took the DIY approach to taxes last year, the complexity of your tax situation may have increased since then (particularly if you had out-of-state employee moves), and you may want to work with a professional for 2020.

Your books will provide much of the information needed to file your taxes. As you research tax preparers, it’s important to confirm how they’ll work with your bookkeeper to get what they need. Sometimes bookkeepers, like Pilot, also offer tax services, so both your bookkeeper and tax preparer can collaborate under the same roof. If you use two separate firms, however, it’s important to confirm what they’ll require and how they’ll work together – or if you’ll be the middleman.

Finally, if you’re considering applying for complex tax credits like the R&D tax credit, start planning early. You’ll need good records and a substantial amount of documentation on your activities and expenses that qualify, and these take time to assemble (our guide is a good place to start!). R&D tax credit claims also tend to be carefully scrutinized by the IRS. Be sure to allocate enough the time to properly build your case, so that you can ensure you’re ready for a possible audit.


Watch the full webinar – End of Year Checklist: Setting 2021 Up for Success

Suggested Reading

The Four Things That Matter When You’re After Hyper-Growth

6 Ways Founders Can Improve Their Personal Finances

What Is a Fractional CFO and Do I Need One?

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