The end of the financial year is fast approaching, and it can be a busy time for individuals, small & large businesses and SMSFs as they work to ensure their accounting affairs are in order. With some planning and preparation, EOFY doesn’t need to be an exhausting and frustrating time and there are several steps small business owners can take to prepare themselves for EOFY, to assist you in getting the right tax outcomes for you and your business.
We’ve put together a few tips to help you prepare for the end of the tax year. The first tip below is definitely the most important!
Plan ahead and definitely do not leave required actions to the last minute
End of Financial Year (EOFY) is a complex time of year involving many moving parts, various cut-off dates and some pre and post-30 June activities that absolutely have to be done by certain cut-off dates to achieve the desired outcome. For example, superannuation payments to be tax deductible must be paid and cleared by the clearing house in the year to be eligible for the tax deduction so this means it probably should be paid 5-7 business days prior to year-end to be deductible allowing for processing times.
This is just one simple but important example of why you need to plan ahead – set your due dates for various actions as failure to do so can have significant tax consequences.
Get the right advice
Talk to your accountant or bookkeeper and work through what needs to be done before year-end. Ideally, this is done in May, or early June, with an assessment of how you have performed for the year to date, and an estimate for the balance. This is so you know what level of profitability you are dealing with, and informed decisions and various options can then be considered and implemented.
They will help ensure your paperwork is up-to-date and accurate to help guide you through the process and answer any questions you may have to manage and mitigate tax payable legitimately. As business accountants, we only encourage legitimate and beneficial expenditure for tax mitigation which adds value to your wealth or business not unproductive expenditure just for the sake of a tax deduction.
Be aware of due dates
Put all the required dates in your calendar to give yourself a reminder that will help you avoid ATO penalties. A full list of these can be found on the ATO website.
Use cloud accounting software
A cloud accounting platform such as Xero and MYOB makes running your business easier and helps your accountant or bookkeeper complete your year-end accounts faster and more cost-effectively, whilst keeping you abreast of how your business if trading at all times. This enables you to work from the same set of real-time data, so you can keep in touch with what’s happening in your business.
Check your inventory levels
Doing a stock take in good time before year-end ensures the accuracy of your balance sheet and that you have an accurate picture of your stock on hand. Inventory checks do not just take into account stock levels but also consumables and assets on hand, which ensures your asset register is up to date and helps to advise the future year’s budget for any asset purchases that may be required. Write off all obsolete stock that is taking up space and will never be sold.
Manage your deductions
To ensure you get the right deductions for your expenses at tax time, it’s important to find out what you can claim. The ATO website has more information, as noted above. This is particularly important for the likes of superannuation, and you can (cash flow permitting) bring forward some expenses such as stock purchases, prepayment for rent etc to minimise taxable income. Other expenses of a capital nature, such as upgrading computer hardware are another example.
If you intend to do so and cash is available before 30 June, you can bring forward the deduction instead of waiting another year. Also, consider any government incentives that apply from time to time such as instant asset write-offs if applicable.
Plan for Success – Now and in the future
The end of the financial year is a fitting time for business owners to analyse the performance of their business, allowing them to see what worked and what didn’t. Review your full budget vs actuals for the financial year to identify and explain any variances; this will form a key part of confirming your budget forecast for the next 12 months.
It is important to consider scenarios (upside/downside) as part of your analysis. This is extremely relevant in the current economic climate to have a reasonable idea of what your operating cash flow needs will be and the additional cash you might need for projects to help accelerate growth or productivity in your business.
Make sure you set goals and targets that are achievable and that you communicate your goals to everyone relevant in the business. People need to know what they’re aiming for, including you. Don’t forget to set a monitoring and review process for these goals and targets at the same time. This way you and everyone else can stay up to date with the progress being made.
The end of the tax year is a great time to reflect on your business and ensure your finances are in order, and also to take the opportunity to take a broader perspective on how you are doing and where you are heading. By doing so, you can ensure a more stable and productive future for your business as you move into the new financial year.
