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How to Organize Finances for Your Local Business in 2021

November 30, 2020
Written by Samantha Novick
November 30, 2020 | Written by Samantha Novick

This is a contributed article from Samantha Novick, a senior editor at Funding Circle.

With just a handful of weeks remaining in 2020, small business owners are looking towards a brighter future — but a new year only promises new fortunes to those who are well prepared.

If you want to usher in a better year for your business—you're going to need to get your finances in order to find success in 2021.

Fortunately, getting organized isn't as hard as it sounds (and it's definitely not as hard as anything you've faced already this year). Below, we'll walk you through everything you need to know and do to set your financial situation up for success.

How to Organize Your Finances

According to a Staples survey, nearly 75% of struggling small business owners believe disorganization leads to productivity loss. And productivity loss often leads to more disorganization. It's a vicious downward spiral, but you can break the cycle by taking a step back and strategically approaching your situation.

“When small business owners feel they have the necessary tools, support, and assets to thrive, they’re able to devote more time and attention to what they’re passionate about—providing their customers and clients with exceptional goods and services," said Michelle Bottomley, Chief Marketing Officer for Staples.

We're here to provide you with the know-how, expertise, and resources you need to thrive.

If you've stayed on top of your bookkeeping and tax obligations, getting your finances in order for the new year will be a breeze. However, if you've fallen behind on accounting, preparing financial statements, estimating your taxes, and the like, then this will be a more demanding process.

Here's a checklist on how to organize your finances for 2021:

  • Get your financial books in order
  • Produce your financial statements
  • Prepare your tax documents
  • Set 2021 financial goals
  • Look forward

Let's take each of these line items step by step so you don't miss anything.

Get Your Financial Books in Order

Maintaining financial books is a tedious but straightforward process. Cleaning them up, however, is a bit more intensive.

If you're not already, consider using a bookkeeping or accounting app to organize your finances. Bookkeeping software like QuickBooks, FreshBooks, Xero, and Sunrise can help automatically import and categorize your income and expenses. This keeps all your data up-to-date so you can gain a bird's eye view of your financial situation at a moment's notice.

To dive deeper into your finances, you'll need to prepare and analyze the big three financial statements:

  • Income Statement
  • Balance Sheet
  • Cash Flow Statement

If you're using a bookkeeping service, creating financial statements is as easy as click, click, done. Below, we'll walk you through how (and why) to use the three primary financial reports.

Produce (and Analyze) Financial Statements

Your financial statements are formal records of your business's financial activity. They give a snapshot view of your past, current, and future financial plans.

Lenders and investors use these reports to evaluate your business's risk. The same factors they use to judge your company are the green indicators and red flags you should be using to inform critical business decisions.

Whether you're a solopreneur or have an entire accounting team at your disposal, you need to have these three financial statements down pat.

Income Statement

Your income statement (also known as your profit and loss (P&L) statement) shows revenue, expenses, and the resulting profit or loss for a determined period. Some businesses create this report quarterly, but you'll get the most from your income statement by issuing and analyzing it monthly.

Compare your income statements month-to-month to identify trends. You may find that profits in holiday months (like November and December) substantially make up for losses during pre-holiday months (like September and October), but you won't learn that by generating quarterly statements or analyzing reports in isolation.

Ultimately, every business wants to create a profit—and the income statement tells you if you're doing that or not. If you're incurring a loss, look for areas to boost revenue and minimize expenses in 2021. If you're profitable, find ways to optimize further and scale.

Cash Flow Statement

Cash flow statements show how cash moves in and out of your business. It identifies the exact sources of income and expenses. Used with your income statement, it answers the question of how and why you turned a profit or loss.

Use your cash flow statement to determine if more cash is coming in your business than going out. If that's the case, you're doing something right. If it's not, then you may need to cut back expenses or secure temporary financing to fill the gaps in 2021.

Balance Sheet

Unlike your income and cash flow statements, your balance sheet gives you a snapshot picture of your business's financial situation as of a specific date—not a period of time.

Your balance sheet shows your business's assets, liabilities, and equity:

  • Assets: What you own. Things like cash, inventory, equipment, real estate, etc.
  • Liabilities: What you owe. Things like loan payments, unpaid wages, taxes, accounts payable, etc.
  • Equity: The money that'd be leftover if you sold all your business assets and paid off all your liabilities.

When making plans for 2021, use your balance sheet to determine your business's liquidity and leverage (this is what lenders care about):

  • Liquidity: Your business's ability to cover debts and payments using your current assets. If you have several debts, but your assets are tied up in non-liquid assets (like buildings, vehicles, and equipment), this is a red flag you need to remedy in 2021.
  • Leverage: A measure of your business's mixture of equity and debt financing. Leverage ratios may indicate that you have a dangerous level of debt or have ample opportunity to secure more financing.

Prepare Your Tax Documents 

Understand, gather, and prepare the tax documents you'll need come tax season next year. The type of form you'll need will depend on your business entity type. Beyond that, you'll need the basics, including your:

  • Balance sheet
  • Income statement
  • Bank and credit card statements
  • Payroll documentation
  • Previous year's tax return
  • Depreciation schedules
  • Asset purchase documentation
  • 1099 forms

If you made any business purchases on your personal credit card or bank account, isolate and document those expenses. You'll need these for filing tax deductions.

Make sure you gather all physical and digital receipts. To calculate and report depreciation on assets, you'll need proof of purchase with the acquisition date and the price.

Set 2021 Financial Goals

Now that you've cleaned up your finances and prepared your tax documents, it's time to set 2021 goals. What do you hope to achieve next year? What are your realistic expectations? How will you reach them?

Below, we'll help you prepare your cash flow forecasts and estimate costs so you can create more attainable goals.

Prepare Cash Flow Forecast 

Cash flow forecasts are data-backed projections about your revenue and expenses. Look back at your previous cash flow statements to make reasonable estimates about the future. 

Keep in mind that other economic factors may impact 2021 cash flow. For example, your business might have grown since January 2020, but thanks to COVID-19 and political tension, that doesn't guarantee you'll make more money in January 2021.

Forecasting your cash flow empowers you to find financial gaps and opportunities while there's still time to act. If you expect large upcoming sales volume, you'll know you need to invest in stocking your inventory. Or if you foresee the typical summer slump, then you can go ahead and secure a business line of credit to cover the slow season.

Estimate Your Costs 

While preparing your cash flow forecasts, you'll want to prepare your bank accounts for bigger costs, too. Cash flow forecasts won't help you predict larger asset purchases and investments like real estate renovations and equipment upgrades.

Now's a good time to start thinking ahead and planning what might need replacing or upgrading in 2021. Will you need to hire extra help? Do you need to upgrade any outdated equipment or software? Should you expand to a second location?

Don't let these major expenses sneak up on you. Start planning now so you can save adequate cash or secure a working capital loan. And if you ever need money immediately, but sales are on the horizon, consider using a merchant cash advance.

Now that you have your goals, cash flow forecast, and estimated costs, it's time to create your 2021 plan. This will be an outline and a budget for what you expect each month of the year.

Formulating a plan in advance guarantees you stay focused and prioritize what's most important. If you anticipate a slow summer, then a plan will ensure you secure the financing you need before the sales drought hits. And if you achieve a predicted sales boost in April, then you can invest that money into upgrading your equipment instead of letting it sit in the bank.

You know what's best for your business, but it's best to put it down on paper. A plan will help you capitalize on prime opportunities and mitigate disaster if things go wrong.

Looking Forward

With your finances in order, you're ready to move into the new year. But don't let all your hard work go to waste. Go ahead and schedule check-ins to keep yourself accountable and on-plan.

2021 Check-In

As soon as the new year begins, take some time to check-in. The holidays can be a major disruption (and a much-needed break), but you need to make sure you remember your financial plans and hit the ground running.

Look back at your end-of-year financial statements. Are you still on track to accomplish what you have planned for 2021? Or do you need to make some upfront edits?

Set Up Regular Check-Ins

Take time to revisit your plan throughout the year. It's easy to get lost in the day-to-day and week-to-week operations, but a pre-scheduled check-in will give you a chance to step out of the weeds and look at the big picture.

You may want to do quarterly or end-of-month check-ins. You can check-in alone, or you can get your accountant or bookkeeper to look through the financials with you.


We all need a break this holiday season, but don't fall into the mindset of thinking the future has to be better than 2020. Invest your time now to set your local business up for success.

Getting organized takes time, but it's oh-so-worth-it to start the new year with a clean slate. Do the upfront work now so you can reap the financial rewards come 2021. 

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