Organisations encounter numerous hurdles daily, from hiring issues to retaining product relevancy. Business finances are not only a complicated and ever-changing reality but also the foundation of any company.
Running a business can be stressful, especially for startups and SMEs. On the other hand, the last financial quarter brings additional obstacles, mainly if some aspects of the company’s finances have been overlooked or delayed.
Recognising that an organisation must plan and prepare for tax season and other year-end mistakes is essential. This blog post will guide you on your end-of-the-year (EOY) checklist.
Reasons for year-end mistakes
You can trace many year-end accounting errors to a single source—human error. Any friction that occurs during this time can be traced back to either of the things:
It’s easy to make mistakes when you have a lot of paperwork to complete and complicated procedures to follow, especially since some of the tasks are repetitive, less exciting, and time-consuming.
2. Manual data entry
End-of-year errors are frequently caused by manually entering data on paper or into spreadsheets. Despite this, the manual data entry method is still widely used.
If an organisation’s finances are managed this way, making mistakes is nearly a certainty, especially if done by non-experts.
3. Inefficient communication
Completing end-of-year operations may necessitate understanding and explaining corporate events that occurred years ago. It can be confusing and inefficient to spend time conversing with someone to obtain information or context, especially if the people involved are unaware of the value or significance of EOY processes.
4. Missing documentation
Missing paperwork can cause significant delays in expense reconciliation and other activities for year-end closing. As a result, incorrect or incomplete paperwork submission can result in the loss of tax claims.
Bookkeeping and planning are critical aspects of running a finance function of a successful company.
Strategic planning and skilled leadership require a grasp of an accurate picture of your company’s finances. There are a few common end-of-year mistakes to avoid to help your company have smooth sailing.
Running a successful firm often requires a business leader to be well-versed in all operations and areas of the process.
When deadlines become immediate, some duties, such as filing quarterly VAT returns, annual tax returns and other bookkeeping responsibilities, can be too late to perform to the high standard required. Planning your end-of-year activities is one of the most important things you can do to save time, money, and resources.
Tax season can be stressful enough, and rushing for critical documents, invoices, and receipts at the last minute can worsen the matter. Getting things correct the first time can save you time and help you avoid legal issues later.
Financial integrity is the lifeblood of any company, big or small. As a result, effective accounting administration in your business can assist in your success.
a. Track all transactions
It’s critical to keep track of your money to determine where you stand financially. You should keep track of every time money enters or exits your company. Consider setting aside weekly time to organise and evaluate your company’s finances. It will make reconciling your books easier at the end of the year.
b. Use accounting software
Accounting software will make it simple to keep track of your business’s transactions. You might consider a ledger to track your expenses and income, but you can access various affordable and high-quality software options these days.
Rather than attempting to save money by doing this activity yourself, the software is preferred because it is easier, faster, and more exact than paper and pen.
Furthermore, the software keeps all of your records in one place rather than dispersed throughout the office. You must look for software that is easy to use and provides outstanding customer service.
c. Separate your business and personal finances
Many business owners struggle to keep their business and personal funds separate. Most people mix up their accounts, especially when they’re first starting.
It’s crucial to remember that combining your personal and professional lives is a formula for disaster. To keep your business finances distinct, you should open separate credit cards and checking accounts.
You won’t get a clear picture of your business’s economic health if you don’t segregate your funds. Furthermore, you may end yourself wasting time during tax season sifting through bank records in an attempt to determine deductible expenses.
Segregation of funds may also provide protection and make it easier when you sell the business (tax reasons, establishing valuation, etc.). You’ll also find that opening a business account is relatively inexpensive.
2. Bad bookkeeping
Operating a business without appropriate bookkeeping is inefficient, but it can soon become unmanageable and cause complications.
Bookkeeping is critical for a seamless end-of-year accounts finalisation, and sticking to a pattern might help you get in a good position.
Ineffective bookkeeping can have an impact on several factors
a. Credit issues
Poor bookkeeping can have a significant impact on how a company operates. For instance, if you pay your debts late, you’ll face increased interest rates, fewer payment options, credit loss, and interference with your credit score or reports.
To avoid this, your bookkeeper should keep track of your earnings to manage your transactions more efficiently. Effective bookkeeping includes everything from reporting to financial management.
b. Lack of sales and profits
You may lose access to reputable suppliers and vendors if you manage your accounting records poorly. As a result, you may experience a drop in sales.
Furthermore, your clients and consumers may become dissatisfied with your service and seek it elsewhere if your firm slows down. For example, chasing the same customers for payments again after they have paid, just because your bank was not reconciled in time or making duplicate supplier payments.
Besides feedback, customer relationship, and effective customer management, your financial numbers are an enormous indicator of your business performance.
c. Legal situations
Irregular bookkeeping can lead to legal issues, especially regarding unpaid or late tax filings and incorrect deductions.
Due to insufficient finances to pay your creditors, your firm may be pursued legally, with a legal file against your firm or debt collectors set loose on your business.
Look for a professional to undertake tax management to assist in planning your yearly accounting procedures, and make sure your bookkeeper communicates with your tax accountant frequently. In this manner, you’ll be able to keep complete control over your earnings, payroll taxes, and sales and appropriately deduct expenses.
3. Not considering tax timings
Being a startup founder or member of the executive team may make tax appear a million miles away from your to-do list. However, this isn’t the case. It’s critical to stay in touch with whoever will prepare your company’s tax returns throughout the year.
Understanding that tax is a seasonal business and specialists dealing with multiple accounts at once can help you get a step ahead. You can minimise the pain points created by issues that could have been quickly resolved earlier in the year if you prioritise communication and good information sharing.
The timing of when a firm closes its books can be managed in a way that makes tax preparedness easier. Some businesses prefer to close their books more than once a year to streamline and simplify the process. It is a practice that some companies find beneficial, as closing books annually while preparing tax filings may be time-consuming and resource-intensive.
Whatever method you use to close the books, having a closing calendar will help you prevent expensive mistakes at the end of the year.
4. Not asking for help
A common year-end mistake made by new and young businesses is to keep trying to manage the bookkeeping long after it’s evident that assistance is required. Knowing when to seek help is a skill; some founders are more willing to do so than others.
Doing everything yourself during a hectic end-of-year time and becoming overwhelmed is neither efficient nor productive. Time is limited and valuable as an owner, so recognising a mistake early and hiring someone specialising in that area might be more effective (and profitable) in the long term.
Because end-of-year processes and tax filings are complex, an entire industry of accounting service providers has built up around them. So, if things aren’t as simple as you expected or you don’t have enough time to focus on EOY responsibilities, hire experienced consultants as soon as possible.
By following the guidelines mentioned above, you avoid making frequent end-of-year mistakes, but you also get the new fiscal period off to a healthy start. Being ahead of the EOY game can assist corporate executives in completing EOY processes more quickly while also having greater control and visibility.
There is no secret to a smooth year-end; in many ways, it’s just common sense. Prepare, organise systems, communicate effectively, and follow best practices throughout the financial year. Of course, many options are available if you recognise that you require assistance.