This month, Peter Watters ACA focuses on being prepared for year end.
What springs to mind when you think of year end? Tax of course and how to minimise the amount HMRC will take from your business! However, it is not just about the previous year, it is an ideal time to start planning for the next year. Here are some simple steps to assist you.
Get your books in order
Whether you manage your own books or use an accountant or bookkeeper, this is the first step in the preparation. Accurate bookkeeping will help you identify:
Your cashflow position in order to help you plan ahead and meet your obligations;
Whether your expenses are in proportion to your income;
Which products/clients are most/least profitable;
Whether your business is growing or shrinking.
What can you do to cut down the work your accountant does for year end?
The less time it takes to decipher your books, the less your accountancy fees will be. General tips are:
1. Keep your receipts in date order.
2. Reconcile the bank balance to the bank statements – If you can ensure your recorded bank balance ties up with what is actually in the bank after adjustments, this saves significant time.
3. If you hold stock, have a professional stock-taker record the value of stock at year end.
4. Make sure your accountant has everything including paying in books, cheque books, bank statements, credit card statements, PAYE/Payroll records, VAT records and copy returns if VAT registered, stock records.
Determine your Position
You are finally ready to determine the position of your business. Your accountant will prepare the following documents that will assist you in making decisions:
Profit and Loss Account – in simple terms, this lists all your income and expenses and tells you at year end whether your business is making a profit or a loss. This is a useful tool to analyse your expenses compared to last year. Are your wages higher? Have your utility bills increased? Both things have an impact on your bottom line. Is your gross margin less than last year? If so, you need to evaluate your cost of sales and review your suppliers.
Balance Sheet – this shows what your business is worth at year end. It shows your business’s assets, liabilities and equity/capital of your business.
Cash Flow Statement – for medium sized businesses, determines the short term viability of the company.
So, how will you use these documents to improve your business next year?
1. Compare your results against your business plan. If you set goals, compare these to what was actually achieved and determine what worked and what didn’t. This will assist with planning for the following year.
2. Consider ways to increase your revenue AND profitability. This could be reviewing your suppliers and buying better or investing in marketing.
3. Evaluate your tax strategies – could you have maximised your capital allowance claim? Would you benefit from changing the structure of your business? Your accountant/tax advisor can help you minimise your tax liabilities.
For more information, contact Peter Watters on 01424 730000 or email firstname.lastname@example.org