Susan Stoll is a registered bookkeeper and passionate supporter of local business. Here, she shares her insights with Power Diary on preparing your practice for the end of the fiscal year.
There is a vast array of advice relating to how you should prepare for the end of the financial year. This advice comes from various perspectives; accountants, bookkeepers, advisers, and business owners. Unfortunately, the advice can be overwhelming and filled with “Accounting speak”, and you might end those conversations more confused than when you started.
Let’s simplify the process into 3 main areas that will ensure that you leave the end of year with a clear knowledge of how your business is doing and have a path to proceed for the following year.
You, the business owner that rarely has an extra 10 minutes a day, are also the person that knows the most about your business and needs to be involved in end-of-year preparation. Don’t shy away from the responsibility, be involved; after all, it is your signature that will be on the bottom of your tax return. Advisers can only act on the information you give them, they need to work with you to ensure that your return is accurate and that nothing is missed.
Here are three main areas to keep in mind as the financial end of year approaches:
1. Pay Yourself
A little-discussed topic, this one is at the core of every business as we start preparing for the end of year: “How much money did I spend?”
We all go into business because we are skilled in an area and want to be able to use that skill to support ourselves and our families. The business that we establish needs to operate as its own separate entity, not just an extension of you.
Being a director does not entitle you to spend the company’s money as if it was your own. There is a discipline in paying yourself a regular wage whether it be as an employee or as director’s drawings. That bottle of wine purchased on a Friday through the business account will add up to a whole lot of tax payable at the end of the year. Paying yourself a wage ensures that you can budget for expenses and will not have to face an unexpected tax bill.
2. Review your reports
Have a thorough look at your business before you see your tax advisor. Power Diary is a great source of information on sales, clients, and end-of-year information.
- Invoices outstanding: are any of these invoices able to be recouped, what invoices need to be written off as bad debts?
- Sales reports: what income have you received for the year, does this income match the Profit and Loss report available in your accounting program?
All accounting programs used to record information on your business will have both a Profit and Loss and a Balance Sheet report available for you to review. Many business owners check their Profit and Loss reports to see how they are doing but neglect their Balance Sheet Report.
Your balance sheet shows the worth of the business in terms of what the business owns and owes.
- Look for loan balances to ensure they are correct. This may include asset loans or directors’ loans.
- Check that asset purchases are assets (substantial purchases that can be depreciated e.g. computer) and not expenses (small purchases not able to be depreciated e.g., a USB).
- If you don’t understand something, seek out information and get answers.
3. Prepare your information
Save time by having your information ready for tax preparation. Your accountant will require several forms of information to lodge your tax return. Prevent the back and forward of emails/calls by having them all compiled before a return is requested.
This information includes:
- Bank and loan statements for the period of lodgement 1 July to 30 June of year;
- Any asset purchases or sales that occurred during the reporting period;
- Stocktake if any goods are held for sale;
- Employee wages;
- Superannuation paid;
- Director’s drawings (personal expenses);
- Receivables/Payables e.g., Bad debts, prepaid expenses;
- Any background information for the year.
As everyone knows open communication is always the key to any relationship and that includes your tax advisor when it comes to end of year. The three areas of preparation suggested are worthless if not communicated with your tax advisor. They in turn will have the necessary information to communicate their advice and ensure your end of year is both stress-free and valuable time spent on your business.
With end of year approaching, it’s time to get those ducks in a row so keep these three areas in mind:
Be sure to pay yourself,
Read your reports,
Prepare your Information and…
Bring on End of Year!
Guest contributor Susan Stoll founded Secure Taxation Services to solve some of the issues that small business owners face when trying to balance the many responsibilities of owning a company. Susan and her team take a personalised approach to their services, aiming to find the best solutions to support each individual business. They offer an end-to-end solution that includes accounting systems, management support and advice.