<h3><b>End of year tax adjustments</b></h3> <p>If you can legitimately lower your business income or increase claimable expenses before the end of your financial year, your reported net profit will be lower, so your tax owed will reduce accordingly for that year.</p> <p>Below are a few examples to consider:</p> <ul> <li>If you buy fixed assets before the end of your financial year, you can claim a portion of depreciation as an expense. It’s often why equipment resellers promote items for sale at the end of March, as they know there’s a tax benefit for buying by March 31st, rather than April 1st.</li> <li>Identify any obsolete assets that you no longer use and consider selling them (or even recycling for $0), especially if they have a high book value. Any loss between the book value and what you sell them for will be an added expense to your profit and loss. You can also revalue any assets down where the book value is higher than what they are worth.&nbsp; Once you’ve finished, update your asset register so it’s a more accurate reflection of the business.</li> <li>Have an end-of-year sale to clear out old stock or materials and reduce your inventory levels. Not only will you have less inventory to count on March 31st, but it’ll increase your cost of goods sold (thereby reducing your gross profit).</li> <li>Check any inventory for any breakage or ruined stock. If it’s no longer fit for sale, you should write it off.&nbsp;</li> <li>If there are customers who still owe you money, think about the chances of recovering the debt, and if you’ve exhausted all your options, think about writing them off as bad debts.</li> <li>If you receive income in advance, you should count the value of sales in the next financial year. A good example is winning a new customer in March who pays a deposit for work that starts in April. If you note the deposit as sales in March, it’s added to your overall sales for the year, which will increase your reported net profit.&nbsp; Better to record the cash coming in for the next financial period (you still declare it as income, just later).</li> </ul> <p>As you’d expect, it’s critical to get expert financial advice from your accountant or adviser when making any of these decisions, as industries and individual businesses will all have different circumstances, and to make sure you’re squeaky clean with Inland Revenue.</p> <h3><b>Run your financial reports</b></h3> <p>The end of the year is a great time to assess where you stand financially and how your current situation compares to previous years.</p> <ul> <li>Review your income statement to see where your business stands financially and what your outlook is like for the new year. If your cash reserves are lower than expected, you may want to make some changes and cut costs. If you have spare cash, plan what you’ll do to make the most of the windfall (buy capital items, build cash reserves, new product or service development).</li> <li>Analyse your cashflow statement to identify how cash flowed throughout the year and if you can predict any future issues next year that need to be solved (when outflows exceed inflow).</li> <li>Double check all your key performance indicators (KPI’s) and identify any that need attention. This can include items such as your margins, customer acquisition or retention, financial ratios, sales and expenses.</li> </ul> <h3><b>Conduct an inventory audit</b></h3> <p>Identify any discrepancies between actual and recorded inventory. Make sure your inventory procedures are clearly documented to avoid unnecessary inventory mistakes. If you’re still counting inventory manually, consider making the switch to an accounting system or POS system to automate your inventory and recordkeeping.</p> <h3><b>Collect what's owed to you</b></h3> <p>Any bad debts will drag over into the next financial year (and remain as a debt owed to you on your balance sheet), so it’s often useful to focus on having everyone paid up. You could even consider offering any laggards a discount to clear any outstanding bills before the year end (as long as they don’t take this as a trend and pay late every year).</p> <p>If you have good processes in place for collecting debt, the less likely it is that you’ll have to chase debtors. Key factors to keep in mind are:</p> <ul> <li>Age of the debt, as the longer you leave it, the tougher it’ll be to get paid.</li> <li>Encourage customers to pay in instalments or deposits, rather than having one large sum outstanding.&nbsp;</li> <li>Have a credit agreement for new clients (and check their credit history).&nbsp;</li> <li>Change your payment terms to 'payment within 10 days'.</li> <li>Set up automatic reminders inside your accounting software (if appropriate).</li> </ul> <p>Depending on the type of business you run, you may be able to reduce the number of credit accounts you offer and if possible, avoid extending credit at all. Getting payment at the point of sale improves your cashflow and eliminates the possibility of having to chase people for payment. It can also be useful to offer multiple payment options such as credit cards, pay online, in advance, in instalments or early payment discounts.</p> <h3><b>Claim all expenses</b></h3> <p>It’s important that you keep detailed records of all expenses so you can claim them against your income (and therefore lower your possible tax obligation).&nbsp; Review and improve your filing system and check:</p> <ul> <li>Any business travel you can claim (meetings, transport, accommodation, meals and entertainment).</li> <li>Donated goods or services to charities.</li> <li>Employee expenses on credit cards.</li> <li>Legitimate home office expenses.</li> </ul> <h3><b>Backup</b></h3> <p>No matter how much or how little you work with technology, it’s still a good idea to make sure your IT ducks are in a row by the end of the year (backing up your data and making sure your systems are up to scratch). Make sure that your important files, including accounting documents, client information, creative briefs, and valuable emails are backed up and secure.</p> <h3><b>Summary</b></h3> <p>There are lots of other end of year tasks you may need to complete, based on your industry. The key is to take the time to clean up any tasks or work that will spill over into your next years’ accounts, so you’ve a more accurate reflection of your business to report and use for future planning.</p>