Are You Ready for Your EOFY?
One of the challenges of many small businesses is planning ahead.
Previously, I wrote about the post-Christmas cash flow crunch and now we’re looking ahead to the end of financial year. A key point to note is that this year Easter falls on the weekend of 31 March, so we need to aim for returns to be filed by 29 March to be prepared.
EOFY – end of financial year
I recently posted a photo on Instagram of a few bookkeepers at a conference with the caption ‘Thoughts on EOFY’. Several commenters tried to work out the acronym, and some of those attempts I cannot publish here!
For most small businesses in New Zealand, the end of financial year falls on 31 March; in Australia it is 30 June. Not for profits and schools tend to be 31 December.
Why is the EOFY important?
It literally is the financial line in the sand from one year to the next. For this reason, we want to ensure our financials are in the best position possible and as tidy as they can be so we can start the new year afresh.
Your accountant cares: They will review your profit and loss over the year, your balance sheet as at year end, take into account any assets you have purchased or disposed of and complete depreciation on the assets. Working with your accountant or bookkeeper throughout the year, as things happen, makes the process much easier.
Your bank manager cares: Nearly everyone needs lending at times – mortgage, loan to cover cash flow shortfall or simply for a stock or asset purpose. Your bank manager will take your EOFY figures into consideration when making any decisions about lending.
Inland Revenue cares: Your accountant files an IR3 for you personally and an IR4 for your business. This includes an IR10 which is based on your profit and loss and balance sheet. Your income tax and provisional tax is based on these documents.
How to prepare for your EOFY
It’s a bit like preparing for a new year’s event.
Check on your guests (staff)
Make sure the last pay run is up-to-date and all PAYE is filed and paid. Login to your MYIR and review any statements, notices or letters (ask your accountant or bookkeeper if you are unsure of anything).
Do your housework
Make sure your house is tidy. Remember, it’s not ideal to shove things in a drawer or cupboard for later – the same goes for financials. Have your bank accounts in the best position possible (i.e not overdrawn). Pay off loans if possible before EOFY.
Find out if you have enough drinks and nibbles for the event
Do a stock take – it is important to have an accurate figure of stock on hand. This should be completed on, or as close as practicable to, 31 March.
Think ahead and stay connected with your accountant and bookkeeper
There are a few government compliance changes that are opt-in from April 2018. AIM (Accounting Income Method) means your accountant can prepare your provisional tax on a bi-monthly basis in real time rather than guess for the year ahead. Please speak to your accountant if you would like to know more about AIM. Secondly, a potential PAYE filing change has been proposed, which would mean filing your PAYE return with your pay runs, rather than monthly. Note, this legislation hasn’t been passed yet.
Make sure you check in with your accountant or bookkeeper – they can help you identify solutions that can further benefit your business, e.g. cash flow forecasting, payroll and reporting.
Most importantly, have fun and take time to celebrate your success over the past year. Remember that success comes in many forms – it could be that you are still in business, that you have made a profit, or that you grew your business.
Happy New Year.
Profit and loss
Otherwise known as a trading report, a profit and loss is based on your monthly income and expenditure. Think of it as similar to your bank statements with a few adjustments like depreciation and sales invoices that are owing but not yet received.
Revenue less cost of goods sold is your gross profit.
Gross profit less expenses and overheads gives you your nett profit or loss.
Otherwise known as a financial statement, this is a combination of your assets (bank accounts, accounts receivable and stock), less liabilities (loans, credit cards, overdrafts). We take the profit or loss from above and give an equity figure to the business.
Personal tax return prepared by your accountant using data from your business accounts and any PAYE earnings.
Set of business financials filed with Inland Revenue summarising your financial year trading and financial position.