- 27% fear that not being prepared for year-end could lead to them going out of business
- 30% say they are concerned about incurring unexpected debt by not properly preparing for year-end
- 54% of those looking for help getting ready for year-end found the information available confusing.
- 40% say they are worried about being fined for not meeting their obligations
These findings very much reflect my own experience where I find too many businesses operate without regular management accounts, don’t prepare a cashflow forecast and only visit their accountant once a year – usually only to find out how much tax is owed.
Take action NOW
If you’re concerned about tax year-end or you just completed a stressful one, take action NOW – by getting on top of your systems, next year-end should be a lot less painful.
One thing which doesn’t help businesses is that ‘year-end’ itself can be very confusing. Technically the tax year ends on 5th April but HMRC will also accept 31st March as being the end of the tax year.
You can in fact choose your business’s financial year yourself (for example, you might choose 30th April which could defer tax payments if early year profits are expected to rise sharply). However, you have to consider whether the extra complication is worth it compared to the possible benefits. Personally, I usually recommend choosing a 31st March year-end to keep things simple and many people do opt for this date.
The impact of year-end will also be very different depending on whether you are operating as a sole trader or a limited company – there are different returns and deadlines. HMRC does provide lots of useful information on its website and you can usually ring them up for help.
Get set for a stress-free year-end
The key to being prepared for the year-end is to get into regular financial routines – and this includes preparing regular management accounts so you can see where you are and what’s coming up so as to avoid surprises.
So what practical steps can you take?
- First, you need the right information to know where the business is at – this means using good accounting software like QuickBooks and preparing regular monthly management accounts, including a balance sheet. This is not at all easy to do with spreadsheets.
- Include a provision for the tax due each month in the management accounts. (In the absence of help from your accountant, you could estimate this from last year’s accounts.)
- Print off and review the balance sheet every month as this will show you what the business owns and owes at the month-end, including what’s owed for tax and VAT.
- Open up a separate bank account and deposit an estimate of VAT and tax liabilities on a monthly basis – that way you won’t be fooled into thinking the business has more money than it does. You should do that for your own personal Self Assessment tax as well, where this applies.
- If you are guilty of running your personal expenses through the company (and you are not alone!), regularly check the size of your Director’s Loan account so you don’t get a nasty surprise at the year-end.
- Maintain a cashflow forecast going out at least 6-9 months – this can be a time-consuming exercise and is not always easy to do or keep updated but it is an essential tool to keep you prepared. Make sure you stress-test it for different scenarios, e.g. what if sales were down 10% or indeed up 10%? Your accountant can help you prepare a cashflow forecast and you could also post your project on sites like PeoplePerHour but you’ll need to update it yourself.
- Sign up to at least three medium-sized accounting firms’ tax newsletters and attend networking events on business issues. Keep abreast of broad tax issues in your industry because when it comes to financial advice, you need to know the right questions to ask.
- Create financial checklists for your business/industry (perhaps with the help of your accountant or advisor). You can then schedule time in your diary on a weekly, monthly and quarterly basis to go through them. To make a start, have a look at my recent article on financial routines – I suggest some regular agenda items which should be useful.
Finally, talk to people about your concerns and worries – don’t put your head in the sand and hope it will be all right on the night. To be honest I have found most people are really willing to help – even potential competitors.
As soon as you break the year-end down into smaller tasks (e.g. using the checklist approach), it won’t seem nearly so daunting. And if you start work on getting your procedures and systems in place now, the next year-end will be much less stressful.