For some small business owners, the end of the financial year means sleepless nights chewing on a pencil over a blank tax return. Getting your finances in order can be daunting at the best of times, but sticking to a deadline can make it overwhelming.
A good way to tackle the end of the tax year is to create a year-end accounting checklist.
Making sure you’ve not forgotten anything, though, can be time-consuming, especially if you’re a small business owner without a dedicated finance department to do it for you.
That’s why we’ve gone ahead and created a 7-point year-end accounting checklist for you! And as we get close to 5th April and the end of the tax year, what better time to ensure your finances are ready for a smooth transition into the new financial year?
So, without further ado…
1) Get your accounts in order
First things first: how organised have your books been this year?
If you keep your finances in order day in, day out, then making sure they’re suitably prepared for your tax return shouldn’t be too difficult.
A lot of small businesses accomplish this by using specialist accounting software to stay on top of things. If, however, you’ve taken a more laid-back approach to your bookkeeping, you could have a greater challenge on your hands.
You also need to ascertain whether your accounts payable and accounts receivable are up to date. Review who owes you what, and make sure you don’t owe anyone before moving on to the next step.
2) Really understand your finances
With your bookkeeping in order, the end of the financial year is the perfect time to really get to grips with your accounts.
Firstly, it’s crucial to reconcile any card statements with what your accounts are showing, as this ensures none of your transactions will be missed, double-counted or erroneously classified. How easy this task is may well be affected by the number of business bank accounts you have.
Go through every item on your balance sheet and income statement, line by line, to make sure that every record is correct and that your sums are entirely reflective of the year’s transactions.
Not only is this good practice, but it will also stand you in good stead if you’re looking to take out any business funding in the coming year, such as a small business grant or a small business loan.
When you begin to research how to prepare a business loan application, you’ll find your understanding of your company’s finances put to the test. For this reason, the annual review at the end of a financial year will be very useful to you.
With your balance sheet and income statement in order, the third crucial piece of documentation you’re going to need is your cash flow statement, which reconciles a period’s opening cash with its closing cash.
To prepare a cash flow statement, summarise your company’s inflows and outflows for the following 3 areas:
a) Investing activities, e.g. assets purchased and assets sold
b) Operating activities, e.g. expenses and revenues
c) Financial activities, e.g. loan repayments, new loans taken out and partner or shareholder distributions or investments
Overall, this will let you see in a nutshell the net decrease or increase in your company’s cash over a given period, highlighting exactly where the money is going. Once you have completed your balance sheet and income and cash flow statements, you’ll be strongly positioned to examine your company’s profit margin, helping you understand in far greater detail the financial health of your business.
3) Create a budget
Your budget is simply an estimate of future expenses and income for any given period. It’s a good idea to break it down into smaller, more manageable chunks; you could divide it quarterly, or even monthly, as well as between departments. It’s also worth sharing your budget with key members of the team, especially those working closely with the funding for certain areas of your company.
Consider how you allocate budget across your company. Set aside individual pots for key areas such as sales, marketing, talent and tech, whilst remembering the basics such as business insurance.
Finally, compare the budget you set this time last year with this year’s actual expenses and income. How accurate were you? If you were considerably off the mark, something might have gone awry and a rethink of your budgeting could be in order.
4) Strategise around tax
Tax planning at the end of the financial year gives you an advance opportunity to position some of your transactions in order to save your business money on tax.
There are numerous ways to achieve this, such as income splitting or maximising your company’s depreciation claims. You could also expedite expenses you had initially intended for early in the next financial year, such as software subscriptions due for renewal. Or defer invoicing customers until after the end of the financial year. By increasing your expenses, these strategies ultimately serve to lower your taxable income.
More complex strategies can be employed to save on tax, but you may require the assistance of a small business tax accountant in order to get the most out of these. Accounting software can be very helpful if you intend to seek professional assistance from an accountant. Such software will streamline the process by giving you a clearer view of your finances whilst enabling the accountant to access your online records directly.
5) Take an inventory
This one’s pretty straightforward. If you sell products of any kind, counting your inventory enables you to identify discrepancies on your balance sheet.
In fact, counting inventory need not be limited to products you sell, but can also include your supplies and assets. Remember, too, to keep track of broken or missing items. This can all factor back into your budget if you need to replace anything over the course of the next financial year.
6) Set goals
By this point in your checklist, you should have attained a far more comprehensive view on the financial health of your company. This, in turn, will allow you to start thinking about the future — although a quick look back into the past can be helpful, too.
Consider last year’s goals. Did you achieve them? If so, to what extent? If not, what challenges and obstacles prevented you from doing so?
Setting goals is a quintessential part of growing any business. Having regular and realistic targets to hit will keep both you and your workforce motivated, focused and confident. Ensure your goals are well defined for example let’s aim to cut labour costs by 2% every quarter — as the lack of ambiguity will more effectively clarify what’s going right and what isn’t.
No matter how short- or long-term your goals, as long as they’re in line with your overall business objectives then you’re sure to continue moving in the desired direction.
7) Reflect on the business as a whole
As a diligent, hard-working small business owner, you can easily find yourself so caught up in daily operations that you begin losing sight of the bigger picture. When you seem to be spending every waking moment replying to emails, negotiating deals, speaking with clients, fulfilling orders and keeping up morale, it’s understandable to feel there’s simply no time to take a moment and reflect on a higher level.
The truth is, though, you need to find that time — otherwise, your business could plateau. These periods of reflection are as crucial to the prosperity of your company as the nitty-gritty day-to-day tasks, so make sure you allot some time once a month, once a week even, to sit down either alone or with senior management to work out how to keep the business on track to meet its goals.
Get on top of your finances today
Year-end is the perfect time to reflect on your business. Your company is another year older and (hopefully!) another year wiser. Following a year-end accounting checklist will not only make sure your finances are in order for the new financial year, but also encourage you to step back from the business and take a broader, more objective perspective on how you are doing and where you are heading.