Prepare your Company for Fiscal Year End
Financial Year End (also known as fiscal year-end or FYE) is the closing off of a company’s accounts for their business year. At its core, it is nothing more than the 12-month (annual) accounting period for a company and is used to assess the annual profit, loss, and performance of a company’s finances. The financial year end is legally important however for two reasons. Firstly, the period corresponds to governments’ tax years in which they assess from an annual perspective how much tax is payable to the state from individuals and corporate entities alike. Secondly, it is important for listed and public companies to publish their annual financial statements so that investors can assess their investment performance and market analysts can understand their business operations.
FYE does not necessarily correspond with the calendar year. It can do by running from 1 January to 31 December, but for many companies, it is not practical from a business cycle perspective. Companies are able to choose their year-end date, as long as they are set out legally and also run consistently. Many companies in South Africa tend to align their company’s financial year-end with the personal tax year dates of 1 March to 28 February. For many South African companies then, financial year-end occurs on the last day of February each year. Closing off a whole year of trading and transactions is not an easy task, so how best can company’s prepare for FYE?
Make Sure your Bookkeeping Is Up-to-Date for the Year
It makes sense that if your company has stayed on top of month ends during the course of the year, ensuring they are as accurate and timeous as possible, it makes closing off the financial year as a whole that much easier. Maybe you have let a month (or months!) slip but Financial Year And is the time to catch up and tie up all those loose ends. Ensuring that each month-end has been correctly completed, that each section is accurate, and is properly reconciled helps ensure your year-end is accurate and complete. Prepare bank statements in advance and have everything you need ready to go as soon as the time comes to close off your year-end. A good accounting software program goes a long way towards automating this process as well as ensuring accuracy and balance between all the accounts.
Check your Inventory Levels
Doing a stocktake in good time before year-end ensures the accuracy of your balance sheet. This checks that your expiry dates are accurate, account for shrinkage and ensures you have an accurate picture of your stock on hand. Inventory checks do not just take account of stock levels but also consumables and assets on hand. This ensures your asset register is up to date and also helps to advise the future year’s budget in terms of any asset purchases that will be required. Doing your inventory check ahead of time helps to make your Financial Year End smoother, more accurate, and on time.
Assess your Accounts Payable and Receivable
Your accounts payable and accounts receivable reports are other items to prepare and interrogate. You should start by reviewing the ageing reports to make it clear what is due to be paid within the current financial year and what is due to be received as income within the current financial year. This allows the accounts team to chase payments and budget correctly to ensure debts that are due, are settled, and income due is received timeously. It is also an opportunity to work on either bringing forward accounts payable transactions or delaying receivable income to the new year to affect the taxable income for that FYE.
Plan your Tax
As one of the core reasons for having a financial year-end is for government to be able to calculate the amount of tax your company is liable to pay, it follows that planning your tax is an important preparatory step before completing your FYE. Tax planning involves planning your finances in such a way as to pay the least amount of tax that is allowed under the law. Tax planning allows you to plan transactions by accelerating or delaying them either into the current year or to the future year to save you in taxes. One strategy is to accelerate any expenses that you can and 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 license renewals, or major asset purchases. In some cases, businesses will defer sending invoices until the new fiscal year- where possible and under the ambit of the law- in order to reduce income before year-end.
Analyse Your Business Year and Plan for the New Financial Year
The end of the financial year is an opportune moment for business managers to really analyse the performance of their business from a more bird’s eye view. It allows owners and managers to see what worked and what didn’t. It allows you to see trends in your business and also allows you to forecast for the new financial year. Budgeting for the new financial year is almost impossible without an accurate view of the performance of the previous year. A budget involves an estimate of future income and expenses for the set period of time (the new financial year). This involves marketing spend, staff quotas, and assets forecast requirements- all balanced against a sales and income forecast. All of this relies heavily on accurate and timely financial year-end.
Financial Year End can be a major stress factor for many account teams, but it plays a vital role in analysis and planning in a business, not to mention fulfilling the requirements set out in a country’s taxation law. Being prepared and making use of a good ERP system or accounting package such as Omni Accounts can ease the burden of this important financial process.