5 Tips to End the Financial Year Strong
In the next couple of weeks, let’s make sure you end the financial year strong.
Another financial year is almost over, where did it go? How was the year for you, good, bad or downright ugly? With just two weeks to the end of the year, it may be too late to have a chat with your accountant to do some tax planning unless you already have, but there’s still time to take action on a few things.
My five tips when the end of the year is this close are:
1. Check your profit and loss statement.
First of all, you need to know whether you’ve made a profit for the year or not, and how much that profit is. It’s worth having a good look at each line in the profit and loss, making sure it makes sense, and nothing looks out of place.
One way to do this is to compare this years’ figures against last years and look for the anomalies.
Unfortunately, though, the profit showing in your profit and loss statement may not be the figure that you will pay tax on.
If your tax return is prepared based on cash transactions, and your accounting system shows your accounts receivable (debtors) and accounts payable (creditors) on the balance sheet, then you need to adjust for that.
Let’s assume that the profit is $ 50,000. Accounts receivable are $ 8,000 and last year were $ 12,000 and accounts payable are $ 6,000 and last year were $ 4,000.
The taxable profit is calculated as:
Profit $ 50,000
Add accounts receivable from last year $ 12,000
Add accounts payable for this year $ 6,000
Total: $ 68,000
Less accounts receivable for this year $ (8,000)
Less accounts payable from last year $ (4,000)
Taxable Income $ 56,000
So yes, your taxable income can be more than your profit. Equally, it could be less if the numbers are different.
2. Pay employee superannuation to get the tax deduction.
For superannuation costs to be deductible, they must be received by the superannuation fund before 30 June.
The ATO requires that superannuation for small businesses must be paid quarterly within 28 days of the end of the quarter. Thus, the April to June contributions aren’t due for payment until 28 July. Beware, though, that some Employment Awards require monthly payments with different due dates after the end of the month.
Whether you pay the superannuation monthly or quarterly, if you have calculated that you’ve made a profit for the year, it may be worthwhile to bring forward the payment for superannuation and get it processed before the end of the year to get the tax deduction in the current year.
Continuing with the example above, let’s look at the effect of two alternatives.
a. You didn’t pay the superannuation before 30 June last year.
The balance sheet shows that there was superannuation payable last year of $ 3,500. And this year, you don’t pay the contributions before 30 June either which means that there is superannuation payable of $ 5,500.
Taxable Income from previous calculation $ 56,000
Add superannuation payable for this year $ 5,500
Total: $ 61,500
Less superannuation payable from last year $ (3,500)
New Taxable Income figure $ 58,000
b. Same as a, but this year you do pay the superannuation before 30 June so that there is no superannuation payable on the balance sheet.
Taxable Income from original calculation $ 56,000
Add superannuation payable for this year $0
Total $ 56,000
Less superannuation payable from last year $ (3,500)
New Taxable Income figure $ 52,500
Depending on your profit, whether your tax return is based on cash and whether you have the funds in your bank account to pay the superannuation will determine whether you should consider paying the superannuation contributions before 30 June.
3. Chase up outstanding invoices to end the financial year strong.
It’s always nice to end the year tidying up some loose ends. One of the tactics I use is to send personalised reminder emails to anyone who has outstanding invoices owing to me asking them (politely) to pay their bills and how much I’d appreciate payment before 30 June.
This usually gets a few laggard invoices paid and some more funds into my bank account before the end of the year that might otherwise not have been paid until later.
4. Review expenses.
It’s too late to make any significant impact on your expenses so close to the end of the year, but it’s a good time to take a good hard look at them and determine whether any can be eliminated or reduced for the next financial year.
This is one way to set yourself up for success for the next year. It never ceases to amaze me that I continue to find costs to reduce or eliminate even though I check my numbers regularly and if you’re not looking at this regularly, the chances are you’ll find savings which will give a boost to the start of the next year.
5. Set your financial goals for next year.
The end of one financial year means the beginning of the next one and time to review what worked, what didn’t work, what could be improved, what costs could be reduced or eliminated as discussed in point 4, and ultimately what your goals are for the next year.
Your goals may be a revenue target, a profit target or a pay increase for yourself. Whatever your goals are, put them in writing and create a budget to work from.
In 2019 end the financial year strong.
Don’t just let another financial year roll by without considering a few steps to take to get you the best result you can for this year and set yourself up for the next.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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