24 Oct It’s Year End… Were You Profitable This Year?

As business owners, year-end can feel like a mix of celebration and confusion. You’ve worked hard, sales look good, and yet — understanding whether your business was truly profitable can still feel murky. If you think your financials may not be giving you the full picture, reach out to Siegel Solutions for support!

This article breaks down how to find your real bottom line, beyond just what the Profit & Loss statement says.

Start with the Basics

Even though most small businesses file taxes on a cash basis, the truest picture of profitability comes from looking at the business on an accrual basis. Accrual accounting matches income and expenses to the period they actually occurred — not just when cash changed hands.

So first things first:
✅ Make sure all customer invoices have been sent.
✅ Enter all vendor bills — including those sneaky credit card charges that often get overlooked.

Once those are in, you’ll start to see a clearer picture of how your business really performed.

Why This Matters

Knowing your true profitability isn’t just about taxes – it’s about making smarter business decisions.  Understanding what’s driving your profits helps you plan hiring, set prices, manage cash flow, and identify which parts of your business are really pulling their weight.

Adjust for Timing Differences

Were there any invoices sent out for services not yet performed? Maybe deposits or upfront payments from customers? Those shouldn’t count as current-year revenue — they belong on the balance sheet as customer deposits or deferred liabilities.

The same goes for expenses. If you paid for a trade show, annual subscription, or insurance policy that covers next year, that’s a prepaid expense, not a current-year cost.

And what about large purchases — new equipment, furniture, or computers — that might have been booked as regular expenses? Some of those may need to be capitalized as fixed assets and depreciated over time.

Don’t Forget Accrued Salaries, Commissions, and Bonuses

Another key item that often gets missed is accrued payroll — salaries, commissions, and bonuses that were earned this year but won’t be paid until next year. Recording these ensures your expenses match your revenue and gives you a more accurate view of your profitability. Ignoring them can make your year look more profitable than it actually was.

Review the Balance Sheet

Now that we’ve covered the Profit & Loss, let’s not forget the balance sheet — because if your balance sheet isn’t right, your profit and loss can’t be right.

Take a closer look:
• Do you have prepaid expenses from last year that should be expensed this year?
• Are there customer deposits or deferred revenue from last year that should now be recognized as income?
• Are loan balances or credit cards fully reconciled and accurate?

And while you’re at it, make sure your beginning balance sheet for this year is accurate. Sometimes your CPA makes year-end adjusting entries during tax preparation — and if those weren’t entered in your books, you could be working from the wrong starting point.

Common Mistakes We See

• Forgetting to record credit card transactions.
• Not adjusting for deferred revenue or prepaid expenses.
• Missing payroll accruals for bonuses or commissions.
• Starting the year with last year’s CPA adjustments missing.
• Reporting direct labor as overhead instead of cost of goods sold.

Compare to Prior Years

Once you’re confident your Profit & Loss statement is accurate, take it one step further and compare it to prior years. Look for trends — where did expenses or revenue increase or decrease? This helps you understand what’s driving results.

If your business separates Cost of Goods Sold (COGS), take a close look at your gross margin (Revenue minus COGS) and see how it compares to prior years. An increase in margin is pure profit! When reviewing gross margin, make sure it’s calculated correctly. Too often, companies leave out costs directly tied to producing revenue — things like direct labor, subcontractors, or materials — and instead bury them in general and administrative expenses. This can artificially inflate your gross margin and give you a misleading view of profitability. The more accurately your COGS reflect your true production or service delivery costs, the more meaningful your gross margin will be.

So… If I’m Profitable, Where’s the Cash?

Once you’ve done all this and you’re confident you’ve nailed down your true profitability, you might still find yourself asking, “If we made that much money… where is it?” You’re not alone — many business owners see strong profits but don’t have the cash to show for it.

The reality is that profit and cash flow don’t always move in sync. Things like loan payments, asset purchases, owner draws, and changes in accounts receivable or payable can all absorb cash without ever touching your Profit & Loss statement.

That’s a whole separate exercise — one we covered in last month’s article, “Why You’re Profitable But Don’t Have Cash in the Bank.” If you missed it, reach out and we’ll be happy to send you a copy.

Next Step

If you’re not sure whether your financials are giving you the full picture, reach out. Our team at Siegel Solutions can help you run a year-end review, identify missed entries, and ensure your numbers tell the real story — before you hand them off to your CPA or file your taxes.