OPINION: What to do before closing your books

Published Oct 17, 2018

Share

JOHANNESBURG - Most small business owners dread the end of the financial year and the associated paperwork. Closing your books and ensuring you are ready to file your tax return is stressful and time-consuming.

Here is a checklist to help you prepare to meet SA Revenue Service tax filing requirements, and plan and budget for the new financial year.

1. Count your inventory. If you sell physical products or keep parts and consumables in stock - for example, an agribusiness might have machine spares, fertiliser, and seeds on hand - you should count your inventory to give your accountant the following numbers:

* The quantity/units of each stock item on hand at year-end.

* The value of the stock on hand at year-end.

* The cost of inventory purchased during the year.

2. Chase down outstanding payments and settle with your vendors. You should aim to close the year with a clean set of accounts, meaning you have collected all money due to you for the financial year and you have paid your creditors.

The reason this is important is most small businesses - apart from sole owners and partnerships with a turnover of less than R2.5million - must use the accrual method of accounting rather than the cash method.

In the accrual method, you incur the expense or book the revenue on the date of transaction. By contrast, in the cash method, the transaction only takes effect when the money leaves or enters your bank account. If you are not carefully managing your debtors, you could end up paying a large slice of VAT and income tax to Sars before the money comes into your account.

3. Close your books and finalise your accounts. A few points you should consider as you get your books in order:

* Check that you have recorded all sales and purchases for the year.

* Gather any supporting documents for tax or audit purposes, such as invoices, receipts, bank statements.

* Ensure that you have accurately recorded all costs and expenses for the financial year.

* Look at whether you have any bad debts to be written off.

* Reconcile your bank accounts to your cash book.

* Consider whether you want to pay performance bonuses to your employees.

* Compile and file any outstanding VAT and employer reconciliation returns.

* Estimate your tax liability for the year.

4. Compare your actual performance against your forecasts and budgets. Once you have final income statements, balance sheets and cash flow statements for the year, compare your business's real performance against the budgets you set at the end of the previous fiscal year.

Can you quantify the effect of unexpected events on your performance, for example, the impact the drought had on your farm's crop yields or the impact of the rand dollar exchange rate? The answers to these questions will help you set realistic targets for the new financial year and identify opportunities to improve profitability or invest in growth.

Viresh Harduth is the vice-president: new customer acquisition (start-up and small business) for Sage Africa & Middle East.

PERSONAL FINANCE 

Related Topics: