The dreaded financial year end usually brings late nights bent over the accounts and a lot of stress. Especially for those who are not organised and prepared. Many small business owners make the mistake of leaving the numbers to the accountants. Whether you are a new business or a seasoned hand, it is important to understand what the bottom line is telling you. Keeping a close eye on the money is good business practice.
A quick tour of financial year end terminology:
28 February is the individual tax year end and the most common date selected by companies to “close the books”. However, a business can choose any date and sometimes, a seasonal business may prefer to wait for the end of the busy season to declare the year end. Regardless, the date once determined, must be adhered to unless a Form CoR25 (Notice of Change of Financial Year End) is completed and submitted to the Companies and Intellectual Properties Commission (CIPC).
The Trial Balance is an internal document and simply the start of the process. It is about checking for mathematical accuracy… do the columns literally add up? Once an accountant or auditor has reviewed and, if necessary, adjusted the Trial Balance, then it is time to prepare the Income Statement. TheIncome Statement is commonly referred to as the profit and loss statement, because it tells the story of whether or not the business is making a profit or running at a loss. The Balance Sheet is a statement of the assets, liabilities, and capital of a business.
How to make the year end less painful
- Keep detailed and complete records of every single financial transaction. There are many apps and accounting software packages that make this a very simple process…even as simple as taking a photograph of the slip & the App does the rest.
- Keep a record of any assets purchased, especially if these were purchased on credit. Ideally, these should be recorded on an asset register. It is very easy to commingle personal and business assets in a small business, but this results in confusion over ownership and an unclear view of the financial health of the business. An asset register also allows for the asset to be depreciated over time.
- Check every month that your bank records and all the transactions reconcile in the business books.
- Conduct a monthly stock check and reconcile against purchase orders. (This has the added benefit of quickly identifying shrinkage or other problems.)
- Ensure that any interest paid or payable is included in the financial statements.
- Use these books to prepare accurate VAT, PAYE, SDL and UIF submissions.
Time invested during the year on establishing and maintaining clean and easily auditable records, means that the Year End should be a straightforward process and ultimately cheaper. Accountants and auditors’ fees increase if the books are in a mess. A more meaningful benefit to you the business owner, is that you will be able to make informed business decisions during the year based on what the numbers are telling you.