The financial year end of a company (also known as Fiscal Year End or FYE) is undoubtedly the busiest period of a business’s year. Essentially, it is the wrapping up of the company’s accounts for the business year.
This assists all key stakeholders assess the company’s profits, losses and overall financial performance for the year that was. Once this is done, your accountant will then use this information to prepare your annual financial statements, which will then be used by analysists and investors for various investing activities. The data gathered will also be used by SARS to determine the tax amount payable or refundable to you. Generally, South African companies will opt to align their financial year end with that of the personal tax year dates as set out by SARS (1 March to 28 February).
This however is not a rule of thumb and a year-end closing date suited to you and the industry in which you operate can be chosen at incorporation of the business.
As mentioned, FYE can be extremely overwhelming; think a whole month of finalising reports, checking the accuracy of your inventory levels, reviewing accounts payable and receivable ageing records, and of course, many overtime hours claims from your staff. While FYE can be a daunting task, believe it or not, it does not have to be.
By ensuring the below steps are followed during the months leading to year end, you are guaranteed to breathe easier during February:
Ensure Accurate Bookkeeping During the Year
Naturally, if your inhouse or external bookkeeper has kept accurate records of monthly transactions timeously, closing off your books during year end will be that much easier. By ensuring that month end records are prepared timeously, and stringent reconciliations are performed monthly between your own records and bank statements, you should have one less problem at year end. It is recommended to automate your monthly processes using a good accounting software. These software are usually fully integrated and can provide a number of in-depth useful reports.
Keep Records of Inventory Levels
Scheduling your stocktake at a date too close to your year-end will be to your detriment. To guarantee a precise balance-sheet, your inventory check should be well-timed, promising a true representation of not only your stock on hand, but also your assets. By ensuring your company’s inventory list is kept up to date, you will be in an excellent position to prepare for the final stocktake before FYE. Ultimately, being well prepared for stocktakes will keep you safeguarded during year end.
Accounts and Payable and Receivable
Your creditors and debtors are a crucial measure of the business’s performance and will affect your taxable income for the year. Ideally, this is another area, like bookkeeping, that should be analysed and interrogated monthly. It is essential to scrutinise your receivables thoroughly, and any amounts that are no longer expected to be recovered should be written off as bad debts from the company’s books. Amounts that are due to creditors should also be reviewed and once done, it should be decided which of these must be settled before the FYE or pushed to the next year. This will allow your accounts department to chase payments where necessary and prepare accurate budgets are prepared, ensuring all debts due are settled and incomed received for the FYE.
Planning your Taxes
As mentioned, one of the main reasons for having a FYE is for SARS to calculate your taxable income, and as such, planning your taxes will help ease your load when year-end comes along. You want to ensure you are structuring your businesses finances in the most tax effective way possible.
While you could face major setbacks during FYE due to incorrectly maintained financial records throughout the year due to human error or other factors, insufficient knowledge regarding processes, or misplaced documents, all these factors that can be avoided if the above points employed.
Remember, this time of the year is also an opportune moment to reflect on the year that was and really having a birds-eye-view of the company’s successes, failures and overall performance. You’ll be able to clearly see what worked, what didn’t and what you can do better in the future.
Remember, as famously coined by Benjamin Franklin, if you fail to plan, you plan to fail.