The 5 things you need to be doing as we approach the end of the businesses tax year
You know the cliché: Businesses that fail to plan, plan to fail.
We all know how important business planning is, especially when it comes to finances, but it can be a daunting task for any business owner.
With the end of the tax year quickly approaching, the Auria team have put together a quick look at things you need to cover before wrapping up the 2020 fiscal year, and how to prepare for the coming one.
Get your accounts in order
The most important place to start is getting your books in order. If you've been organised throughout the year this should be easy, but if not, meticulously go through your accounts and pull together all your incomings and outgoings from this tax year.
Once you've gathered all the financial information you need it's time to go through it with a fine-tooth comb to make sure you know exactly what every transaction is and to check it's correct.
The 3 most important financial documents to a small business, especially at the end of the tax year are a balance sheet, income statement, and cash flow statement.
Balance sheet is a summary of your business's financial position at any point in time. It shows all your assets, liabilities, and equity.
Income statement otherwise called a profit and loss statement. It itemizes your revenue and expenses for a period of time and lets you see at a glance whether your business is profitable.
Cash flow statement shows the net movement of cash in and out of your business over a period of time. It helps you to see exactly where the money has come from, and where it's gone. To prepare a simple cash flow statement for a particular time period, list and summarise your business's cash flow inflows and outflows for each of these three areas:
- Cash flow from operating activities, such as revenues and expenses
- Cash flow from investing activities, such as assets purchased and assets sold
- Cash flow from financial activities, such as new loans taken, loan repayments made, and partner or shareholder investments or distributions
Going through these three documents is not only beneficial when submitting your taxes but it also gives you a very in-depth look at exactly what you're spending and what you're spending it on throughout the year. Having this information allows you to look at the areas where you may have overspent, or underachieved, therefore impacting your cash flow, income statement and balance sheet.
Once you've gathered all of the financial information you need you're ready to submit your tax return. To take the stress out of having to file your taxes yourself, the easiest thing to do is to hand all the information over to your accountant who can submit this for you, saving you hours of stress.
Why you should be filing early
One of the points to have come out of last weeks budget announcement was the chance to carry back your losses for 3 years, meaning that any losses you may have made this year, you can get back from the corporation taxes you paid on the previous 3 years profit.
By staying one step ahead of the game and filing your accounts as soon as possible you are giving yourself that corporation tax rebate months earlier than you would if you submit later on in the year. In this time of financial struggle for many businesses, why wait another nine months for financial help when you could submit in April and get that rebate early.
Looking forward
With the hard work of submitting your taxes completed, you can start looking forward to the next year and begin drawing up a financial plan from the information you've already gathered.
Below are a few of the steps you can take to get one step ahead going into the 2021 fiscal year.
Create a budget
Having broken down and understood your finances from the previous year, you can now look at your budgets for the coming year. If your cash flow and balance sheet are in the green and you have no immediate outgoings on the horizon you could be looking at reinvesting that profit into new marketing campaigns to generate new leads and clients.
Set yourself budgets which can then be reviewed every month depending on your cash flow and business projections. Business is not stable so you may find yourself having to flex and adapt to the economy and external circumstances, but having budget plans and projections gives you a good starting block.
Review payment terms
If one of the problems you picked up on in last year's income statement was your incoming payments, this would be the perfect opportunity to review and remind your customers of your payment terms. Late payments can be extremely detrimental to a business, especially during tough financial times so sending out a gentle reminder to all your clients can be a good way of keeping on top of them.
Build a team
One of the most important things a business owner can do is to build a strong support system for them to bounce ideas off, and turn to when they need help or advice.
This is where Auria can help.
We offer complete business advice and support for anything you may need help with when it comes to the running of your business, whether you're looking for advice in accountancy and for someone to handle your taxes and financial management, or broader business and commercial advice, we are specialists in partnering with you and your business for the journey ahead. Having a good accountant and business manager can make the difference between success and failure for small businesses, so let us help you achieve that success.
Why not reach out to one of the Auria team or visit our website to find out how we can make your life that little bit easier.