As the end of the fiscal year approaches, businesses must prepare for year-end accounting. This is a comprehensive and often time-consuming task, involving the review and updating of financial records, with the overall goal of ascertaining the financial health of the company. Whilst this may sound relatively simple, it can be fraught with potential pitfalls and mistakes.
Fortunately, there is a way to approach year-end accounts that will minimise the time and effort involved.
What is Year-End Closing?
Many businesses will be familiar with the month-end closing process, but year-end closing is much broader and, in many ways, more important. It involves a review of all financial activities throughout the year, including income, assets, expenses, taxes, debt, etc., the list goes on. The goal is to ensure that all financial activity is accurate, up to date and reflected in official documentation.
Not only does this process allow the business to make important decisions for the upcoming financial year, it’s also a requirement for official responsibilities, such as tax returns.
Checklist
The year-end accounting process may look slightly different from business to business but most will be able to follow a general checklist. This includes:
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Create a schedule, incorporating all the relevant tasks with realistic deadlines for each.
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Reconcile all accounts.
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Complete all relevant financial reports.
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Ensure tax compliance.
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Review payroll.
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Update records on assets and depreciation.
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Collect documentation relating to tax.
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Plan budgets for the upcoming year.
Potential Pitfalls
Unfortunately, as year-end accounting can be such a large and complex task, mistakes can and do happen. Any unexpected surprises or delays can completely upend the accounting process. Often this happens because specific documentation is missing or incorrect or a major upset has been discovered when attempting to reconcile accounts.
Another issue which can have a detrimental effect on this process is human error. Year-end accounting can be an extremely stressful time, with workers under a lot of pressure and time constraints, therefore it’s completely understandable that mistakes can happen. However, considering how much of this process revolves around the communication of accurate information, mistakes can be costly.
Of course, as with any aspect of running a business, there’s never enough time and this is often the case with year-end. Many companies will leave this task to the very last minute, piling on even more pressure and distracting workers from other aspects of running the business.
Best Practices
While there are many potential issues facing businesses during year-end accounting, there are ways to protect against these and ensure a much smoother process.
It may seem like a simple suggestion, but starting the process earlier can be extremely beneficial. Rather than treating it as a one-off, end of year deadline, approach this as a continual process. Keep on top of accounts throughout the year and make sure to collect and properly store relevant documentation. Consistent attention over a longer period will make the final process easier, faster and less stressful.
Communication is key and this is particularly noticeable during the process of year-end accounting. Poor communication between departments and even between individual workers can lead to missing or incorrect information, documentation and can be detrimental to the overall process. Improving communication between all employees throughout the working year can pay dividends when year-end finally arrives.
While many businesses choose manual accountancy and do so successfully, for some, automation may be a viable option. Utilising tailor-made software packages, that automate many financial aspects of the business can ensure that many of these potential pitfalls are avoided. Not to mention, ensuring a much easier and faster overall year-end process.
Business owners may dread this time of year and the mammoth preparation involved with year-end but with some small changes and a more proactive approach to accounting, this process can be much smoother.
Any businesses looking for expert help can get in touch with the team at Salhan Accountants.
