End of Financial Year Checklist for Small Business Owners: Get Ready to Close the Books!

As the financial year draws to a close, small business owners across Australia begin the process of tying up the year's financial matters. Completing this annual financial wrapping up is more than an obligation—it's a strategic step in preparing for the year ahead. Balancing the books, organising tax returns, and setting goals for the upcoming year are all critical tasks that can significantly influence a business's future success.

However, this is also a time when many small business owners bury their heads in the sand! How do I know this? I did it myself in my custom cycling business, and I can confirm, this is how a small problem turns into a six-figure problem - fast.

This end-of-financial-year checklist is a crucial guide for small business owners to close out their current fiscal matters accurately and effectively. It also provides an excellent opportunity to review the past year's performance , understand financial standings , and plan for improvements.?

Therefore, I would encourage you to put some time aside and run through the end-of-year checklist with care so you can finish this financial year strong, and lay solid groundwork for the forthcoming year.

Financial Documentation and Reporting

At the close of the financial year, your business must organise and report financial activities accurately. This process paves the way for compliance and gives you a platform to start your strategic planning for the upcoming year.

Income and Expenses Summary

Prepare your profit and loss statement to capture your business income and expenses for the year. This document reflects your financial performance, guiding your decision-making for future business growth.

• Income: List all sources, such as sales revenue and service payments.
• Expenses: Itemise outgoings, including rent, supplies, and salaries.

Stock Management and Valuation

Conduct a stocktake to document what you have on hand as of 30 June (if you have a business that sells physical products). Accurately valuing your stock affects your profit calculation, so it's important to record the details correctly.

• Record each item and its value.
• Update your inventory records to reflect stock levels and values.

Bank Reconciliation and Statements

End-of-year bank reconciliation is crucial to confirm that your records match bank statements. Collect all the year's bank statements and cross-check each entry to avoid discrepancies.

• Deposits: Record and categorise each deposit made.
• Expenses: List all expenses, ensuring the totals match your records.
• Interest: Note total interest paid and received over the financial year.

Asset and Equipment Reporting

List your business assets, including the date of purchase, cost, and maintenance expenses. If you have bought or sold equipment, you'll need to document these transactions as well.

• Business Assets: Provide a complete log of your assets with details for each.
• Equipment Sales/Purchases: Summaries of any equipment or property dealings should be included.

Tax Obligations and Compliance

As a small business owner, staying on top of your tax obligations is critical. This ensures that your business remains compliant with the Australian Taxation Office (ATO) requirements.

PAYG and Payroll Reconciliation

Ensure that you lodge your PAYG (Pay As You Go) payment summary yearly report. You should have already finalised income statements through Single Touch Payroll (STP). It's important to reconcile your payroll, reviewing employee salaries and wages, tax withheld, and superannuation contributions to confirm that all reporting is accurate and reported to the ATO.

Fringe Benefits and GST Returns

If you provide fringe benefits to your employees, you need to lodge a fringe benefits tax return. For GST (Goods and Services Tax), you must compile your annual return, detailing all relevant transactions. This includes sales, purchases, and the GST collected and paid. If you report quarterly or monthly, ensure that all payments are up to date.

Income Tax Filing

It's time to lodge your income tax returns. This involves recording all of your income and expenses throughout the financial year. You'll need to maintain accurate records of purchases and expenditures for capital gains tax calculations and to estimate depreciation. Additionally, keep a detailed list of any government payments, grants, or rebates received, as these may affect your tax obligations.

Financial Health Check and Future Planning

Before wrapping up the financial year, taking stock of your business's financial health and planning for the future is critical. This involves managing debts, reassessing any subscription services you use, and keeping an eye on the future...

Debt and Credit Management

To maintain a positive financial trajectory, you need to thoroughly document your business's debts. Outline the balances and interest paid throughout the fiscal year. Efficient debt management involves reassessing credit terms and seeking opportunities to negotiate better rates or repayment schedules.

Business Loans and Interest:

• Documented Loans: List all business loans with outstanding balances and detail interest incurred.
• Interest Analysis: Review interest payments to discover if refinancing could reduce costs.

Business Loans and Interest

Scrutinise your business loans, tracking specifics such as principal amounts and interest rates. Look over the terms of your loans, and don't hesitate to discuss refinancing options with your lender to possibly reduce costs.

Interest Tracking:

• Annual Summary: Audit all interest paid throughout the year.
• Refinancing Possibilities: Speak with lenders to explore refinancing options that could lower your repayments.

Insurance and Risk Management

Ensure your insurance coverage is comprehensive and current. Review your policies and premiums, and have these details on hand:

• Insurance Records: List and confirm all active business-related insurance policies.
• Premium Costs: Record the premiums paid over the last year.

Keeping detailed records will assist in discussions with financial advisors and accountants, especially when evaluating potential tax deductions or concessions related to your insurance expenses.

As part of this process, I like to cancel my business credit card to deliberately make direct debits fail.

Why??

As the email notifications come in, it gives me an opportunity to review the services I’m paying for. From here, I can assess whether or not we’re using them, check to see if new players have entered the market that are better, and even negotiate a better deal with existing vendors.?

This process has saved me thousands of dollars over the years!

Remember to consult with a professional to verify any recent tax law amendments and understand their implications for your business. A well-informed approach to future planning could save your business a considerable amount in the next financial year.

Strategic Planning for the Next Financial Year

Preparing for the next financial year, you'll benefit from a thorough review of past performance combined with clear goal setting, guiding your business towards sustained success.

Review of Business Performance

Before leaping into the future, take stock of the past year's achievements and areas for improvement. Examine financial statements closely to understand revenue growth, profit margins, and expense management. Reflect on these areas:

• Revenue: Assess streams of revenue, looking into both recurrent and one-off gains.
• Expenditures: Identify where your business spent most and pinpoint any unexpected surges in spending.
• Profit Margin: Compare this year's profit margin with the previous year to determine stability or fluctuation patterns.

Setting Goals and Strategies

With a clear understanding of past performance, it's time to set specific, measurable goals . Outline strategies to address challenges and take advantage of emerging opportunities. Prioritise the following:

• Financial Goals: Whether it’s boosting revenue or trimming costs, assign actual figures to your financial targets.
• Business Milestones : Set deadlines for new product launches or expansion plans.
• Performance Metrics: Choose relevant metrics to monitor progress towards your goals, like customer acquisition costs or inventory turnover rates.

By evaluating past performance and strategising for the coming year, you put your business in a position to thrive.

Setting Targets and Future Planning

As the financial year concludes, business owners should focus on setting clear targets and planning for the upcoming year. This involves defining actionable steps, forecasting future cash flow, and establishing specific, measurable, achievable, relevant, and time-bound (SMART) goals.

Developing an Action Plan

An action plan outlines the specific steps needed to achieve business goals. It starts with:

• Assessing Current Performance: Review the past year's performance against previous targets.
• Identifying Opportunities: Look for new market opportunities or areas for cost reduction.
• Allocating Resources: Decide where to allocate time and money to maximise return.

A well-structured action plan serves as a roadmap for the year ahead, giving businesses a clear focus on priorities.

Projection of Cash Flow Forecast

A cash flow forecast is essential for anticipating the financial health of a business. To create an accurate projection:

1. Estimate Incoming Cash: Include all expected sales and other income.
2. Estimate Outgoing Cash: Account for all expenses, like rent, salaries, and material costs.

Regular cash flow forecasting helps in maintaining healthy finances and preparing for unforeseen expenses.

Setting SMART Goals for the New Financial Year

SMART goals are:

• Specific: Clearly define what is to be accomplished.
• Measurable: Set criteria for measuring progress.
• Achievable: Ensure the goal is attainable with the available resources.
• Relevant: Align goals with broader business objectives.
• Time-bound: Set a deadline for completion.

Setting SMART goals help keep business strategies focused and increase the chances of success in the new financial year.

Additional Resources and Tips for EOFY

With the end of the financial year approaching, it's time to get your documents in order and explore resources that can simplify your processes. Here are some tools and advice that can help you with EOFY tasks.

Handy Tools and Apps

ATO app's myDeductions: This tool is perfect for keeping track of your income, expenses, and possible deductions. It allows you to maintain accurate records throughout the year, which can be directly uploaded to your tax return or shared with your accountant.

• Instant Asset Write-Off: Stay informed about the instant asset write-off by visiting ato.gov.au . This scheme allows you to claim immediate deductions for new or second-hand plant and equipment assets. The website offers specific information on eligibility criteria and claim limits.

Staying Safe from Scams

• Tax Refund Scams: Be vigilant about scams, especially during tax season. Scammers often pose as the ATO to steal money or personal information. Protect yourself by double-checking any communications against the official contact details on the ATO website and never share your tax file number or bank details via unsolicited emails or calls.

End of Financial Year Checklist for Small Business Owners: Get Ready to Close the Books - FAQs

1. How do you close books for a financial year?

Closing the books for a financial year involves several steps. Firstly, ensure all transactions are recorded up to the last day of the financial year. Then, reconcile all accounts to ensure accuracy. Next, make any necessary adjustments, such as accruals or prepayments, to reflect the true financial position. Finally, prepare financial statements, close revenue and expense accounts, and carry forward balances to the new fiscal year.

2. Can a bookkeeper prepare financial statements?

Yes, a bookkeeper can prepare financial statements. However, it's crucial to ensure they have the necessary expertise and understanding of accounting principles to accurately compile these statements. Financial statements typically include the income statement, balance sheet, and cash flow statement, providing a comprehensive view of the business's financial performance and position.

3. What is financial book closure?

Financial book closure refers to the process of finalising a company's financial records at the end of an accounting period, typically the end of the financial year. This involves ensuring that all transactions are recorded, reconciling accounts, making necessary adjustments, and preparing financial statements. Financial book closure is essential for accurately assessing the financial health of the business and complying with regulatory requirements.

4. How to finalise books of accounts?

To finalise books of accounts, follow these steps:

Ensure all transactions are recorded up to the last day of the financial year.

Reconcile all accounts, including bank statements, accounts receivable, and accounts payable, to identify any discrepancies.

Make necessary adjustments, such as accruals or prepayments, to reflect the true financial position.

Prepare financial statements, including the income statement, balance sheet, and cash flow statement.

Close revenue and expense accounts by transferring their balances to the appropriate equity or retained earnings accounts.

Verify that all entries are accurately posted and balanced.

5. How to prepare closing entries?

Closing entries are necessary to reset temporary accounts (revenue and expense accounts) to zero at the end of the accounting period. Here's how to prepare closing entries:

Close revenue accounts by transferring their balances to the income summary account.

Close expense accounts by transferring their balances to the income summary account.

Transfer the balance of the income summary account to the retained earnings or owner's equity account.

If necessary, record any dividends or distributions to shareholders.

Ensure all closing entries are properly documented and posted to the general ledger.

The run-up to 30 June can be a stressful period for business owners, but it doesn’t have to be. My hope is that this checklist helps you navigate through any uncertainty, and helps you thrive in 2024/25. If you would like any help with your financials or with planning for the year ahead, book in a free call and let’s have a chat.