You don’t have to wait until June to start preparing for EOFY. There are things you could do today to make your life easier for 30 June.
This is something I tell all my clients once we’re into the last quarter of the financial year.
This is because I’ve seen many, many business owners in a panic over the years as they leave their end of financial year preparations to the last minute.
But you can get a clearer picture of your financial situation today by making an appointment with your accountant for an interim review of your finances.
This will allow you to do the important tax and strategic financial planning which will make life so much easier – but there are a few things you need before you put your EOFY game plan into place.
Reconcile your accounts
Many of my clients who use bank feeds do daily bank and credit card reconciliations, but you also need to reconcile loan accounts and petty cash accounts.
If you’re using an electronic banking or clearing you should reconcile these too.
For those in retail who are using a Cash Drawer or Undeposited Funds account, it’s really important that this is regularly reconciled.
We had one client who had never reconciled his Undeposited Funds account. When we took over his bookkeeping, his accounts showed he had over $60,000 in this account (which of course it didn’t).
It took hours of work to work out where it had gone wrong over the years.
We eventually discovered he had not been taking up discounts and income values correctly since he had started the business.
This goes to show how important it is to reconcile all accounts regularly. It can pick up errors that may have a significant impact on your financial reports which could lead to you making financial decisions based on incorrect data.
Reconciling payroll is an important process that must be done before issuing payment summaries at the end of the financial year.
It’s a great way to identify coding or payroll-processing errors that could lead to incorrect figures displaying on your employees’ payment summaries as well as incorrect values in the General Ledger Accounts.
Three common payroll problems at the end of the financial year:
- Incorrect handling of returned pays – Many people will receive money back into the accounts for a returned pay, but still code it to a wages account rather than doing a proper transaction reversal, then they will re-process a new pay transaction. This means incorrect wages are reported.
- Coding sub-contractor invoices into a wages account – This will cause the payroll reports from MYOB Essentials or AccountRight to not balance to the General Ledger accounts.
- Discrepancies between payroll reports and BAS and IAS reports – If this occurs, you may get a letter from the ATO advising they have identified a discrepancy. You’ll be required to complete a form declaring the correct values.
Note: If you have under-declared PAYGW this means it’s also likely you have under-paid, so you may be charged penalty interest.
Review your working capital
Working capital is the money your business has on hand to cover the day-to-day costs and expenses in your business such as purchases, payroll and overheads.
Business owners that don’t have working capital often find themselves worrying about paying bills and meeting payroll obligations.
If you’re using great features in MYOB Essentials or AccountRight such as online invoicing and MYOB BankFeeds, it’s an easy process to analyse your working capital because your accounts should always be up to date.
You can easily review your Balance Sheet to calculate Current Assets (cash at bank, accounts receivable, inventory, short-term investments) and deduct your Current Liabilities (accounts payable, payroll and ATO liabilities) – the difference is your working capital.
There are various factors that could cause a shortfall in working capital in a small business.
Some businesses find they have seasonal fluctuations and sometimes it’s caused by expansion costs.
In these types of situations you may find you could benefit from a small business loan with MYOB Loans powered by OnDeck, but always consult your accountant or finance expert first for the right advice.
Although it is essential to review working capital at the end of the financial year, it’s good practice to analyse this regularly throughout the year.
It allows you to make better financial decisions for now and for the future.