With the start of a new calendar year, your business’ accounting year may have come to an end as well. The date you choose for an accounting year end is completely up to you as a business owner. However, your accountant may well have influenced your decision as this choice can have ripple effects throughout your business. So what does it all mean?
Tax Payments
If your company is incorporated, a financial year end date will determine when payment of tax falls due.
For an unincorporated business, profits for the year are decided according to the financial year end.
Finalising Year End Accounts
The work involved with finalising your business’ financial year end can be time consuming. Depending on how you choose to run your accounts throughout the year, you, or your accountant, may have many transactions to catch up on and enter.
Whether this is the case or not, your accounts will definitely take up more of your time than usual around your financial year end. Are your year end accounts coinciding with a busy period for you and your business? Are they potentially having a negative impact on your day to day business by taking you away from serving customers or other tasks?
These are important questions to consider when deciding upon your financial year end. What’s more, when your accounts are produced, you should take the time to go through the final figures and see how your business performed.
What’s your cash flow position? Why were your expenses higher over a certain period this year? The answers to these questions will give you an in depth look at how your business is performing and help you to make better business decisions going forward.
Seasonal Business
Businesses who do most of their trade at certain times of the year should consider their accounting year end date carefully. Specifically, payment date for their tax liability should fall when the cash flow is present within the business to pay it.
A simple way to do this, if feasible, is to open a bank account solely for tax. When the time of year comes when you are doing most of your trade, money can be set aside into this account. When your tax liability falls due, you can be confident that you have the money within your business to pay your obligation.
Changing Your Accounting Year
If circumstances in your business change, the factors above may influence you to change your accounting year. It may be disruptive during the financial year that you make the change and your accountant will probably be busier because of it. However, the benefits long term can make changing a sensible option.
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