Prepping for a happy new financial year

MYOB accountant partner Matthew Gilligan, of Gilligan Rowe and Associates, says there are several fail-safe steps all SMEs should follow year-round to keep their business in the best possible shape and ensure they are well prepared for end of financial year.

He says these actions are simple yet effective and can help SMEs get the best value from their accountant.

“Preparing for the end of the financial year is something you should be working to do all year round by using good systems and streamlined reporting processes, and working closely with your accountant or financial advisor,” says Gilligan.

“As the end of the year approaches, there are further steps you can take that will not only save you time and effort going into the reporting season – they can also save you money.

“Finalising things such as reviewing your debtors ledger, conducting a stock take and bank reconciliation should be a priority. 

“Writing off bad debts prior to 31 March is vital, in order to claim any tax benefits. If bad debts are not written off prior to balance date, you’ll lose the deduction until the following year. If you do collect them later, the collection can be coded to bad debts recovered.”

Similarly, not completing a stock take before the end of financial year can not only lead to misreported profits, but also tax penalties or implications. It is important to conduct a stock take on or around 31 March, says Gilligan. 

“It’s hard to retrospectively count stock,and getting an accurate assessment of your profit is highly significant in terms of tax benefits and to investigate any theft or shrinkage,” he says.

One of the most common pitfalls when it comes to end of financial year is SME owners not being up to date with current laws and regulations.

“A wide range of regulations apply to business, and legislation can change frequently. That is why it is important to have regular contact with your financial advisor or accountant year-round,” says Gilligan. 

“For example, business owners could consider making any necessary repairs and maintenance on assets prior to 31 March, remembering that due to new building depreciation rules some repairs may be deemed as capital improvements and thus non deductable. Thought should be put into whether repair expenditure is a capital cost and non deductible as part of the building structure, or indeed a deductible maintenance item. ”

Another key task to ensure an easy transition at the end of financial year is reviewing the year’s fixed asset register and noting any new asset purchases. 

“Sometimes assets get miscoded to repairs and maintenance sobe sure to review records before sending to your accountant. Purchasing low value assets prior to 31 March can be claimed as an expense in the year of purchase,” says Gilligan. 

“It is also important to analyse the book value of assets to determine if they can be written off for taxation purposes, which can be done if the asset is no longer used by the business and there is no intention of using it in the future. This can provide good tax benefit.”

Some expenses can be prepaid in March and claimed as a tax deduction in the year to 31 March, regardless of the amount. These expenses include stationary, postage and courier charges, vehicle registration, rates, and subscriptions for papers or journals. Other expenses, including rent, consumables, insurance premiums, travel and accommodation, advertising, periodic charges and other services have limits. 

“The rules surrounding prepayments are complex, so if you are planning this type of expenditure it is very important to talk to your accountant or financial advisor," Gilligan says.

“The most basic, yet major, problem that SMEsface as they come to the end of the financial year is the failure to maintain simple bookkeeping process throughout the year. 

“Often it’s the simple and organisational things like creating a record of cash expenses paid personally, or keeping payable and receivable documents up to date that make a significant difference at the end of the financial year. 

“Being properly prepared for end of financial year by using accounting software such as MYOB LiveAccounts or AccountRight Live can really save you and your business in the long run.”

 

 

1. Bank reconciliation – go through cheque butts and deposited funds and finish your reconciliation of all bank accounts.

2. Create a record of cash expenses paid personally.

3. Payables reconciliation – check if any are still outstanding, what debit notes etcneed to be recorded and what cash must be applied to payables to avoid double counting.

4. Receivables – investigate which are still outstanding,for credit notes to be recorded and to clear all bad debts.

5. Home office – consolidate all home expenses paid, e.g. power, rates, telephone, etc, and remember to submit to your accountant as part of your home office percentage claim.

6. Wage reconciliation – run a year-end calculation to check if net wage paid, plus PAYE and Kiwisaver paid, matches the gross wage paid. Note that MYOB has produced an EOFY guide for employers, available online at http://myob.co.nz/employ

7. Prepare all balance sheet items – including a copy of your loan/bank balance at 31 March, HP documents/statements etc. Support your bank and debtors/creditors balances with print outs of your ledgers and bank statements.

 

These key steps, along with working with your financial advisor, should put you in good stead for an EOFY that is relatively simple to navigate.