TIPS FOR SMALL BUSINESSES TO SURVIVE YEAR-END
Financial year-end can be a highly stressful time for most businesses. When one considers everything that needs to get done, including compiling financial year-end reports, reviewing and analysing business trends, and strategic planning for the year ahead, it’s difficult not to feel overwhelmed. Small business owners, who tend to wear many different hats within their own business, are more likely to feel the anxiety and overwhelm. In order to try and alleviate some of the pressure, we have compiled a few tips for small businesses on how, not only to survive, but to optimise and simplify, financial year-end processes.
1. Record Income and Expenditure on a Monthly Basis
Recording income and expenditure by capturing receipts and invoices on a monthly basis, by using reputable and reliable accounting software, will simplify and streamline the preparation of year-end reports. If you leave this until financial year-end, this process is going to be extremely time-consuming and stressful.
Accounting software assists with the organisation of transactions, automates processes, and offers users several different accounting features such as invoicing, expense tracking, and financial reporting. This article highlights some of the free and paid online accounting software options for small business owners. It is important that business owners choose the software that meets their business requirements.
Choosing software and learning how to use it properly can become quite an intricate process and should be done early in the year, rather than at year-end. In the instance where businesses have not invested in software prior to year-end, we recommend using the services of a professional accountant.
2. Prepare a Bank Reconciliation Each Month
A bank reconciliation report run on accounting software will automate the process of comparing invoices and receipts against bank transactions. The benefit is that one doesn’t have to manually compare the bank statements against each individual invoice and receipt. Bank recons also detect potential bank errors or fraudulent activity. Performing this task monthly will allow businesses to correct any identified errors immediately. If businesses wait until year-end to run these reports, they run the risk of detecting errors too late to rectify them.
3. Prepare Financial Year-End Reports
These reports are essential to the year-end process as they present a clear image of the business’s financial position and assist with the preparation of tax returns. These reports are also used to plan and budget for the coming year and to analyse previous and future trends.
Financial year-end reports that should be run at the end of the year include:
- Income Statement: presents the business with an overview of expenses and all revenue streams, which indicate whether the business operated at a profit or a loss.
- Balance Sheet: presents a summary of all assets, liabilities, and equity in the business.
- Travel Logbook: reflects the mileage on a vehicle used for business.
- Payroll Summary: summarises wages, salaries, taxes, and deductions for all employees.
- VAT Summary: reconciles VAT returns to ensure that the business has paid the correct amount over to SARS in order to avoid any potential penalties
- Outstanding Creditors: this report allows the business to analyse outstanding payments in order to evaluate which of these would be written off as bad debt. This will ultimately present the business owner with a true reflection of income, which has an implication on tax payable to SARS.
Business owners may elect to run additional reports, such as a Cash Flow Statement. We recommend consulting with an accountant regarding whether additional reports are required for filing a tax return.
4. Prepare Tax Return
Provisional taxpayers need to have an accurate projection of income received as this determines the potential tax payable to SARS on or before 28 February annually. No business, regardless of size, wishes to pay more tax than necessary. Accounting software will assist in calculating an accurate estimate of tax payable, provided that all reports were run correctly. However, it is imperative that the correct data has been submitted within the software.
If you have any concerns in this regard, it is always advantageous to contact an accountant.
5. Review the Previous Business Year
“We cannot know where we are going if we do not know where we have been.” This is true in life and in business. It is, therefore, important to look back and analyse the previous year to review whether annual targets have been met and whether other business goals were achieved. All businesses should revisit the business strategy and re-evaluate where the business is going and whether they wish to change the current trajectory.
6. Plan for the Year Ahead
After reviewing the position of the business at the end of the current year, the groundwork has been laid for preparation for the coming year. Businesses need to set goals and targets and action plans for achieving these goals. Targets for the year ahead should be in line with the overall objectives for the business. All year-end reports will advise the strategy, goals, and targets.
How CMV can assist
CMV Group has been in the business of accounting and taxation since 1986. With over 34 years of experience, CMV is perfectly positioned to assist you with all accounting and taxation needs. Read more about our accounting and taxation services.
For more information, or to request assistance, please contact us on info@cmv.co.za or 012 991 4400.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)