Are there checks in your office that already count for this year?

A water damage restoration company closing its first full year. About $865,000 of revenue. The books for the year showed about $200,000 of profit.

On January 1, about $120,000 of checks arrived. Insurance-paid jobs, mostly. If those checks had come three days earlier, the year’s profit would have been about $320,000.

That is how cash basis works. Income counts when you receive it. Not when you finish the job, and not when you send the invoice. For a business paid by insurance companies, the money comes in waves, and the waves don’t care about December 31.

Two things follow.

First, the tax estimate. If you size what you owe on the profit and loss alone, you are guessing. You also need the list of what is about to land. Here, the year that just closed was settled. The new year started with $120,000 of income on day one, and the tax on it starts counting the same day.

Second, one rule people get wrong. Received means received. A check that is sitting in your office on December 30 is December income, even if you deposit it in January. Holding checks in a drawer does not move them to next year. What moves them is the day the payer sends them, and you don’t control that.

There is a third, smaller one. Next spring the first quarter will look better than it was, because it starts with last year’s work. Don’t read a strong March as a strong business until you take that out.

What to do before year end:

1. Pull your open invoices on December 15. Mark which ones you expect paid by December 31 and which after.
2. Give your CPA both numbers, not just the profit and loss.
3. Deposit every check you have in hand before the year closes.
4. When the January wave lands, move the tax share into savings the same week.

In QuickBooks Online, run the Balance Sheet as of today and find Undeposited Funds. Newer files call it Payments to deposit. That is money QuickBooks thinks you received and never put in the bank. It should be close to zero. If it isn’t, find out which checks those are and where they went.

If your profit swings with the mail, start the 5-minute intake.