As the end of the financial year approaches, it’s time to turn your attention to your year-end preparation. But while it can feel like a daunting task, with a little proactive planning, you can streamline your bookkeeping process to help you handle the year ahead far more effectively. Here are some strategies to help you do just that.
Recording income and expenses
At its core, bookkeeping is the process of recording a business’s income and expenditure. It may seem like a simple task but can quickly become overwhelming the more transactions there are.
To help, you may want to consider investing in cloud accounting software such as Xero, Sage or QuickBooks, which offer an easy and efficient way to record income and expenses throughout the year. Income and expenses can be entered manually on the software which will guide you through the process. Alternatively, with some software it’s as simple as scanning an invoice, receipt or any other document, and letting the OCR (optical character recognition) technology read the data and sort it accordingly. This has significant advantages over traditional bookkeeping methods.
- Reduces the chance of error: With manual data entry, there is always a risk of human error, which can have significant negative consequences. By automating the process, you reduce the chance of mistakes in your bookkeeping.
- Saves valuable time: Automation speeds up the process of recording and tracking expenses, letting you focus your efforts elsewhere.
- Simplifies year-end preparation: With accurate, up to date records, closing the books and preparing for tax filing is quicker and more efficient.
Reconciling accounts
Throughout your financial year and at your year-end, you need to make sure that your accounts have been reconciled. This process involves checking that your financial records match those of your bank statement and other financial records.
Cloud accounting software can be extremely valuable here too, as you can connect it with your debit and credit-card accounts to automate a checking process. If the software finds a mismatch or missing transaction, it will notify you, letting you investigate the discrepancy.
Reconciling accounts at year-end ultimately helps you identify any outstanding payments, refunds or other financial transactions that may need attention before closing the books for the year. You can then go forward knowing your records and statements are correct and can be relied on for any future plans.
Reviewing financial statements
Once your accounts are reconciled, it’s time to create and review your financial statements. Your accounting software will be able to produce these based on your data – or an accountant can draw them up for you.
But these documents aren’t just about keeping records for compliance purposes; by reviewing these documents, you’ll be able to better understand where you stand at the end of the financial year and identify areas for improvement.
- Balance sheet: A snapshot of your business’s assets, liabilities and equity.
- Profit and loss state: An outline of your revenues, expenses and net income over the course of the year.
- Cashflow statement: An overview of your cashflow.
Review these documents first for any discrepancies or issues. Then use them for your future financial planning as they may highlight opportunities or risks. For example, from your cashflow statement you may be able to identify cash shortages and respond by building a cash reserve.
Preparing for tax obligations
One of the most important tasks during year-end preparation is getting ready for your tax obligations. While tax season can seem overwhelming at first, being proactive can make the process run much smoother. Here are some key steps to make sure you’re prepared.
- Tax deductions: Throughout the year, you would have incurred business expenses that are tax-deductible, including office supplies, travel, marketing and equipment costs. If you’ve tracked your expenses properly, you’ll be able to claim every single one.
- Set aside funds for taxes: As a small business owner, you are responsible for arranging your tax payment. Make sure you set aside enough for the bill, especially if you’re expecting a large payment.
- File early: File your tax return as soon as possible. Beginning early will give you plenty of time to check and recheck your tax return and save you a lot of stress. It will give you more certainty about the tax payable, but early filing does not mean you have to pay any earlier than the normal due date.
- Work with an accountant: An accountant will be able to help you manage your taxes, creating a strategy that saves some money at the same time. Sometimes, it’s best left to the professionals.
For help with your bookkeeping and year-end preparation, get in touch with us. Let’s see how we can help.