At the end of the financial year you need to close that current year’s account. In this article we will provide you with an essential checklist to guide you through the process.
A financial year lays the foundation for tax and will provide you with a. A well-organized approach can help you avoid last-minute stress and ensure that your financial records are accurate and compliant.
When the financial year starts will depend on what country your business operates in. In some countries, the UK for example, the financial year starts on the 1st of April. In other countries, the US for example, the financial year starts on the 1st of January.
1. Update and organize records
Ensure all your financial records are up to date and registered. Make sure that you have sent all your invoices to your customer, that you have registered all receipts and bills in your accounting. This also includes payroll records and any other documentation that supports your financial transactions.
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Organize these records in a systematic manner, making it easier to access them when preparing tax returns or during audits.
2. Review and reconcile financial statements
Once you have made sure that everything is registered, you can start reviewing your financial statements. This includes the profit and loss statement, balance sheet, and cash flow statement. You will find all the reports you need in your accounting software.
Reconcile these statements with your bank accounts, credit card statements, and loan accounts to ensure accuracy and that they are the same. Any discrepancies should be investigated and resolved before moving forward. If everything’s the same in the statements you are on track.
This is also something you can do throughout the year to get to know your business financial health.
Read also: How to manage and keep track of business expenses.
3. Conduct a stocktake
If your business holds inventory, conduct a thorough stocktake to account for all goods on hand. Adjust your inventory records to reflect the actual quantities and write off any obsolete or damaged stock. This ensures your cost of goods sold (COGS) and inventory valuations are accurate.
4. Prepare for tax filing
Gather all necessary documents and information required for tax filing. This includes income statements, expense receipts, bank statements, loan records, and any other relevant financial data.
Review your tax deductions and credits to ensure you’re maximizing your tax benefits. If you’re unsure about any tax matters, consult with a tax professional to avoid potential issues.
Read also: Understanding tax deductions for small businesses.
5. Superannuation and payroll obligations
For businesses with employees, it’s essential to ensure that all payroll obligations are met before the end of the financial year. This includes finalizing payroll and paying any outstanding superannuation contributions.
All employees should be provided with a payment summary at the end of the financial year. If the financial year ends on the 31st of December, the employee should get a summary in january.
Also, make sure to review your payroll records to ensure compliance with relevant regulations and avoid penalties.
6. Review business performance
Take this opportunity to evaluate your business’s overall performance during the financial year. Compare your actual results with your budget and financial forecasts. Have your business performed better than expected? What have you learned or done to get the result. Analyze why the financial performance and financial year is good or bad.
You should identify areas where your business excelled and areas that need improvement. This analysis will help you make informed decisions for the upcoming financial year.
7. Plan for the new financial year
Once you have closed a financial year, you need to look on to the next. You should set new goals and create new budgets based on the review of the past year’s performance. Maybe you also need to change your business plan?
Consider if you need to make any changes in the business environment, such as new tax laws, economic conditions, or market trends, that may impact your business. A well-thought-out plan will help you navigate the year ahead with confidence.
Also, if the last year did not reach its financial goals you should spend some time to adjust or goals and make a new plan on how to achieve it.
Remember, that it is not unusual that the finances can vary from year to year. Factors such as type of business and external factors as the economy will affect your company.
If you are a personal trainer you might have the same amount of clients and invoices each year, with a stable income. If you plan to grow you might expect a rise in income each year.
8. Meet with your accountant or financial advisor
Finally, some might feel like they need some help or advice. Then you can meet up with an accountant or financial advisor.
It is important to ask for help when you need it. Many small businesses do invoicing and some accounting themselves, but get help to pay tax or reporting.
You can discuss finances and challenges with an accountant or financial advisor. Maybe they can give you a new point of view.
