The key to a successful and smooth financial year-end process is planning. If you’ve kept on top of your month ends during the year and have your bookkeeping up to date, it makes finalising year-end less of an arduous task. If anything has been captured incorrectly, now is the time to tie up loose ends. This ensures that much of the laborious reconciliation is done, so accountants can focus on reviewing ledgers, preparing financial reports, and setting budgets and business goals for the next year.
How to simplify the process
1. Identify the important dates and the activities that must be completed by each date. These include reporting and data processing deadlines and the fiscal close date.
2. You’ll need outstanding invoices and receipts to close the books. Ensure employees understand what’s required and give ample time to submit documents.
3. Reconcile all cash accounts and record adjusting entries. Compare inventory accounts with physical stock (if appropriate) and review prepaid spend.
4. Ensure that your recorded transactions match evidence from credit card statements, bank statements, invoices, and receipts.
5. Make sure that all records of money coming in or going out of the business match what actually occurred. If there’s a balance outstanding, create adjusting entries to the original journal entries.
6. Any receivables owed at the end of the year should be added as credits on the income statement, and debits on the balance sheet.
7. Any unpaid debts should be listed as liabilities or accrual expenses on the balance sheet.
8. These can include government contributions or special tax exemptions, as well as private grants.
This is another very important part of the process. Inventory checks don’t just take account of stock levels but also consumables and assets on hand. This ensures your asset register is up to date and helps to inform the future year’s budget in terms of any asset purchases needed.
Tax laws and planning
It is critical that you are aware of any relevant tax law changes – this will ensure that you are well-positioned to either capitalise on a positive change or are prepared for an adverse change for the next financial year-end season.
Also essential is tax planning. This involves planning your finances in such a way as to pay the least amount of tax that is allowed under the law. It allows you to plan transactions by accelerating or delaying them either into the current year or to the future year to save on taxes.
One strategy is to accelerate any expenses that you can. Make sure to spend them before year-end, thereby lowering your total profit for the year and reducing taxable income. This could take the form of increased advertising spend, software licence renewals, or major asset purchases. In some cases, businesses will defer sending invoices until the new fiscal year – where possible and legal – to reduce income before year-end
Ensure that your business is compliant with legislative requirements – check if there is any new legislation that might impact your end of financial year payroll and HR reporting.
Writing off bad debt
If you’re still chasing invoices from the last financial year, now is the time to write them off. Bad debts are tax-deductible and can be used to offset your taxable income.
Digitising the process
Having an online accounting software system will mean that information from all the different areas of the business is captured on a real-time basis during the financial year. This is all because the system is fully integrated, all the information will automatically update all the necessary accounts so that the bulk of the information is already there to be extracted.
A good example is QuickBooks Online, which you can access at any time, on any device. Your data is stored in the cloud, allowing you to run your business from your Mac, PC, tablet or phone. You can easily check your cash flow, send custom quotes and invoices, track your sales and expenses, and sort receipts in one place. You can also create reports to see how your business is doing and get ready for financial year-end.
It need not be an ultra-challenging task to get through financial year-end. As long as your bookkeeping is kept in order every month, you keep track of tax and other legislation, and follow a systematic approach like the one mentioned above, it can be a fairly straightforward process. Of course, having the power of online accounting software to automate each step is beneficial and is a sound investment for any business to make.