End of the Financial Year and Accounting Year: Checklist for Small Business Owners & Planning for Next Year

As we approach the end of the financial year (or accounting year end), small business owners and SMEs (Small and Medium Enterprises) must prepare for the transition. Whether it’s their first time closing the books or they’re seasoned pros, this period offers an excellent opportunity to assess their financial health and set goals for the next financial year.
In this article, we’ll discuss the critical aspects of end of the year accounting and what business owners should focus on when planning for the future.

What is the Financial Year and Accounting Year?

The financial year (or fiscal year) is a 12-month period businesses use for accounting and tax purposes. It does not necessarily follow the calendar year, which is why some companies operate on a financial year that starts in April and ends in March, or vice versa. The term “accounting year” refers to the specific period in which a business organizes its finances and prepares financial statements.
For example, in many countries, the end of the year accounting process coincides with the close financial year, which usually marks a time when tax returns are filed and businesses reflect on their performance. Understanding these dates and the specific requirements for your industry will help you stay organized and prepared.

Why is the Financial Year End Important?

At the accounting year-end, businesses have a unique chance to evaluate their operations. This is when owners, accountants, and financial advisors examine how the business has performed financially and make decisions about the future. The close financial year period is not only about tying up loose ends but also about setting a foundation for the upcoming year.

Here are some reasons why this time is crucial for MSMEs and small business owners:

• Tax Filing and Compliance: The end of the financial year is a key point for calculating taxes and ensuring compliance with government regulations.
• Financial Performance Review: It’s an opportunity to assess the business’s overall financial health, including profits, losses, and liabilities.
• Planning for Growth: With financial insights in hand, business owners can plan for expansion, new investments, or operational changes in the new financial year.

Steps to Take at the Accounting Year End

1. Organize Financial Records

One of the first things to do at the accounting year-end is to organize all financial records for the current year. This includes receipts, invoices, bank statements, tax documents, and any other relevant documents. Having everything neatly organized makes end of the year accounting much easier.
For small business owners who handle their own accounting, using accounting software like QuickBooks or Xero can help automate many of these processes and reduce the risk of missing any important details.

2. Reconcile Accounts

Before you close the financial year, it’s essential to reconcile all accounts, including bank accounts, credit cards, and any loans. Reconciliation involves comparing your internal records with bank statements to ensure there are no discrepancies. This helps avoid mistakes and ensures that all transactions are correctly recorded.

3. Review Financial Statements

At the end of the year accounting, it’s time to review financial statements carefully, including the balance sheet, profit and loss statement, and cash flow statement. These documents provide a clear picture of the business’s financial situation. They will also be used when filing taxes.

• Balance Sheet: Shows what the business owns (assets) and owes (liabilities).
• Profit and Loss Statement: Details the revenues, costs, and expenses over the year, showing how much profit or loss the business made.
• Cash Flow Statement: Tracks how money flows in and out of the business, helping you manage liquidity.

4. Prepare for Tax Filing

Once your financial statements are in order, you can start preparing for tax filing. This involves calculating your taxable income, deducting allowable expenses, and ensuring all eligible tax credits are applied. It’s a good idea to work with an accountant who can guide you through any tax-saving strategies or adjustments.
Small business owners should also be aware of the deadlines for submitting tax returns. Missing deadlines can result in penalties, so proper preparation is key to staying compliant.

5. Review Business Expenses and Cut Unnecessary Costs

As you assess your business’s financial performance, look for opportunities to cut unnecessary expenses. For example, you may find that certain subscriptions or services no longer serve your business needs. By reducing overhead costs, you can improve profitability for the next financial year.

6. Assess Your Business Strategy

The close financial year marks the perfect time to take a step back and evaluate your overall business strategy. How did your marketing efforts perform? Were your sales goals met? Did you manage costs effectively? Use this information to make adjustments in your business plan for the next financial year.

Planning for the Next Financial Year

As the financial year comes to a close, planning for the next year is just as important. A strong business plan will provide direction and guide decision-making for the year ahead. Here’s how to get started:

1. Set Financial Goals

Start by setting clear financial goals for the next financial year. These could include increasing revenue, reducing debt, improving profit margins, or diversifying revenue streams. Break down these goals into monthly or quarterly targets, making them easier to track and achieve.

2. Prepare for Cash Flow Needs

One of the biggest challenges for small businesses is managing cash flow. Ensure that you’re prepared for any seasonal dips in sales, unexpected expenses, or growth opportunities. Having a cash flow forecast for the next financial year can help you avoid cash shortages and plan for future expenses.

3. Invest in Technology and Tools

The accounting year-end is a good time to assess whether your business is utilizing the best technology to manage finances. Investing in updated software or tools can save time, improve accuracy, and increase efficiency in your operations.

4. Plan for Expansion or Scaling

If your business has been successful in the current year, it might be time to think about growth. Whether it’s expanding your product line, hiring more staff, or opening a new location, planning for expansion in the next financial year will require strategic investments. Be sure to budget accordingly and create a roadmap for this growth.

5. Build a Financial Safety Net

It’s essential to have a financial cushion for unforeseen situations, such as a sudden decline in revenue, unexpected expenses, or economic shifts. Setting aside funds for emergencies helps businesses stay afloat during tough times.

Conclusion

The end of the financial year is not just about closing the books it’s an opportunity to review, reflect, and set the stage for future success. By taking time to organize your finances, assess performance, and plan for the next financial year, small business owners can ensure they remain on track for growth and profitability. With solid preparation and strategic planning, the transition to a new financial year can be a smooth and successful one.