The end of your fiscal year is when you have successfully reached the end of a 12-month accounting period. For example, if your business uses a fiscal year-end that matches the calendar year-end, then your fiscal year-end is December the 31st.
It’s often around this time of year when limited companies and sole traders alike will be ending their fiscal year. It can be a busy period with a lot to do. That’s why it helps to get prepared and organised. It’s important to get right because every UK business has to submit a year-end account to ensure that all accounts are:
- Up to date
- In order
- Compliant with statutory regulations
Not only that, but the end of the financial year is also one of the best times to take stock of your cash flow and financial management. It allows you to tidy up your accounting systems and the accounting processes you’ve been using. So if you’re coming to the end of your financial year, here’s how to organise your year-end accounts.
A basic annual accounts template
Before midnight on your year-end date, everything relating to your accounts and financial management needs to be tidied up and organised. The goal is to have everything as up to date as possible so that you can launch into the new accounting year 100% ready.
Here is a basic annual accounts template that you can tick off as you complete each section.
Step 1: Be ready
Getting ready for your year-end accounts in advance is one of the best ways to ensure that your business has the resources and the strategies in place that will position you well for the year ahead. You should start preparing for this at least a month before the year ends. There’s a lot that you can be doing in that month, but the priorities are going to be:
- Letting your team know that expenditure has to be kept to a minimum
- Chasing up any outstanding invoices, debtor statements, and purchase orders
- Ensuring that all paid invoices have been added to your accounting system
Completing these basic first actions will make that final month of the year a lot more straightforward. Keeping the month’s expenses to a minimum is extremely important and very useful as it means that you won’t end up chasing your tail as your year-end deadline approaches.
Step 2: Updating your accounts
Every single figure in your accounts needs to be correct. That means that they should a) add up on your end and b) tally up with all of your financial records, including any invoices, bills, and your business bank statements. Make sure that all essential details are added to your accounts, including invoice numbers and total payments.
Step 3: Fixing errors
If any discrepancies mean your books aren’t balancing; you’re likely missing some form of documentation. You need to rectify those errors as quickly as possible. Get in touch with your clients and ask them to search for any invoices or other documents that may not have been shared with you. This is significantly easier if you’re sharing the same cloud-based accounting software.
The intention is to remove as many roadblocks to your year-end accounts as possible. Spotting those roadblocks before your deadline approaches gives you some breathing room. That can prevent a mad rush at the end of the fiscal year and make balancing your annual accounts a much more streamlined process.
Step 4: Employee data
One of the biggest tasks for getting your year-end accounts ready is to check that all of the data relating to your employees is up to date. If HMRC decides to carry out an audit on your business, one of the first things they will look at is your payroll and your expenses. National Insurance payments and taxes are almost always going to be something they’re extremely interested in!
If there are mistakes with your payroll, it’s not the employee who will be liable for them. It’s the employer who will face the wrath of HMRC. It’s not just about the taxes either. Auditors will want to know that all employees submit expenses and provide the relevant receipts.
Step 5: Chart of accounts
Your chart of accounts is part of your nominal ledger, and it’s directly linked to your profit and loss report. These are all components of your overall balance sheet. Your chart of accounts will need to be as accurate as possible, so check that it’s up to date and currently correct. If there are any errors, you will have to chase them up.
Step 6: Analyse financial statements
This is where a checklist for organising your annual accounts gets a little more complicated (which is why you should start getting organised at least a month before the end of the year). Your financial statements are the key to a better business because they will let you see exactly how well your business is doing financially.
Not only do they act as a snapshot of where your finances are right now, but they are also crucial when it comes to financial forecasting and making plans for next year’s business growth.
You likely have a variety of different financial statements available, especially if you’re using high-quality accounting software. However, the three most important at this stage are the following:
Profit & Loss statement
Sometimes referred to as an income statement, your Profit & Loss (P&L) statement will summarise all your expenses and business revenue. Essentially, it will be a list that breaks down your cash flow, with a formal statement that shows the money you have lost and gained in any given year.
There are lots of important elements to a P&L statement. Those elements will include:
- The revenue of the business
- Expenses paid out for tax
- Costs relating to general operations
- Cost of goods sold
- Asset depreciation
We’ve all heard of the phrase “the bottom line”, and you’ll be able to see your business’s bottom line by checking the difference between the total money that your business made and the money it has spent. Always check your P&L statement against last year. This can give you immediate insights into your performance levels. If the indication is that you’re spending too much, that’s a good sign that you need to implement some cost reduction strategies.
Cash flow statement
The cash flow statement lists all of the cash that goes into and comes out of your business. We’re talking literal cash here, so it doesn’t include a record of any credit you have received or given. What you want to check is whether you have a positive cash flow or a negative cash flow. Positive means that you have more money coming in than expenses, and negative means the opposite.
The cash flow statement is so important because it can help you plan for next year. It will be a complete breakdown of your cash flow for the last 12 months, which means you can easily identify seasonal trends. That can be incredibly useful information when you’re getting ready for another year of trading.
If you’ve successfully tracked and managed your cash flow throughout the year, doing your year-end accounts will be much easier. That cash flow statement can then also be used to create a cash flow forecast, which will make it easier to predict the money that will come into and go out of your business.
The balance sheet
This is one of the main sections of your accounting, and it’s one of the most important. No organisation of your year-end accounts will be complete if you haven’t checked that your balance sheet is correct. There’s a lot of information on even a basic balance sheet, inducing details about your assets, liabilities, and equity.
The goal of your balance sheet is to ensure that your liabilities and your equity are the same total amount as your assets. As before, if there are any mistakes or inaccuracies, resolve them as quickly as possible.
Step 7: Inventory
If your business has inventory, it needs to be included in your year-end accounts. You’ll need a complete list of your supplies and materials, so carry out an inventory check before the end of the fiscal year. During this check, potential issues such as excess inventory or inventory shrinkage can be spotted.
Accounting for your inventory is helpful for more than just balancing your year-end accounts. It can also give you great insights into your annual inventory spend, which is fantastic information as you start thinking about next year.
Step 8: Receipt organisation
As long as you’re not still storing your business receipts in your desk drawer in a growing pile of stationary, your business receipts should be an easy step to complete. Disorganised business receipts are a bad sign, and they can be very risky too. If your receipts aren’t organised, your accounting is far more likely to be inaccurate.
A lot of basic accounting is nothing more than being neat, tidy, and organised. Go the opposite route with messy, disorganised receipt management and your chances of making a mistake on your business tax returns will be much higher.
Step 9: Reconciling credit cards and bank accounts
You need to make sure that your bank account records match your accounting records. To do this, simply compare them. Everything should match. If not, you need to resolve those discrepancies.
Step 10: Back-up
It’s a good idea to back up your accounting details at the end of the fiscal year. This ensures that you won’t lose that information. You’ll need a reliable system for your backup. Some business owners save everything to their computer or print off every document and keep those documents somewhere secure. Of course, if you’re using cloud-based accounting software, backups are automatic and so you can skip this step on your annual accounts checklist.
Step 11: Give everything to your accountant
If you’re using an accountant, after you’ve collected and collated all of your financial statements and resolved any discrepancies, you will then hand all of that information to them. Again, if you’re using accounting software, this will be much easier than printing every document off and handing over a physical copy of everything.
You will likely need to hand over most of the information already listed above. Always talk to your accountant first though. They will give you a full breakdown of everything they need. They may simply need access to your accounting software.
Step 12: Don’t stress
Doing year-end accounts can feel like a major cause of stress, but they don’t need to be. The more organised you are with your bookkeeping throughout the year, the easier those annual accounts will be to organise. Take your time, resolve issues as you discover them, and talk to your accountant if you’re unsure about something. Year-end accounts are important to get right, and they can be beneficial for a wide range of reasons. But don’t let them cause unnecessary headaches.
Step 13: Start planning for the year ahead
Once you’ve got everything done, it’s time to look ahead. With all of your year-end accounts up to date and accurate, future plans will be much easier to formulate. Use your cash flow statements to spot the busiest times of the year, and use your inventory checks to ensure that you don’t run out of key inventory at the busiest times of the year.
Make your year-end accounts easier to get right
Growing a business is significantly easier if your financial records are clear, error-free, and organised. The more you understand your business’s finances, the easier it is to make the plans that encourage growth.
Find out for yourself how more accurate accounting can help guide your business. Contact the team at Big Red Cloud today and start getting the insights you need. Alternatively, sign up for a FREE trial of our cloud-based accounting software and get first-hand experience of how we can support the finances of you and your business.