5 Common Mistakes to Avoid at End of Financial Year (EOFY)
With the end of financial year fast approaching, it is paramount to ensure your books and accounts are in order. Here are some mistakes you should avoid.
With the end of financial year fast approaching, it is paramount to ensure your books and accounts are in order. The stress of increasing piles of paperwork can hinder the clarity, confidence and reliability of reports and accounts. A lack of preparation can be detrimental to your company’s financial statements, creating a more stressful and tenuous end of financial year period.
To ensure your contracts are in order for 2016, Lawpath recommends getting in touch with an experienced contract lawyer.
Here are five common mistakes to avoid coming up to the end of financial year.
Mistake 1: No contact with your accountant for the majority of the financial year
Particularly for business operators who are not experienced in accounting, utilising a bookkeeper or accountant to keep their accounts in order and to provide timely advice throughout the year is hugely beneficial for the business. This ensures business owners are kept up to date on key accounting or tax changes, but also how they can grow their business and maximise their position at tax time.
However, a common mistake for any business is to only reach out to a bookkeeper or accountant at the end of the financial year when their accounts are in a mess and they have very little idea of their financial position. Business operators should engage an accountant throughout the year, with many offering set, monthly fees, to assist with cashflow. This allows business owners to receive advice throughout the financial year and to have the confidence that their accounts are up to date to ensure they sail smoothly through the end of the financial year.
Mistake 2: Not keeping accounts up to date
Failure to keep accounts up to date can make end of financial year harder than is necessary. Checking a backlog of accounts can be time-consuming and can hinder the clarity and consistency of information provided in support of your financial statements. Furthermore, failing to monitor incoming and outgoing cash flows within a set timeframe can leave a business without vital funds to service its obligations. This may be resolved by utilising accounting software available to assist businesses keep records and accounts.
Mistake 3: Leaving financial statements to the last minute
It is only logical to say that leaving financial statements to the last minute is as unnecessary as it is common. Point 2 and 3 are interwoven as ensuring financial statements are clearly and accurately represented requires time. Keeping accounts up to date will help ensure the burden of preparing financial statements is not last to the last minute. This will ensure better quality and accuracy in statements.
Mistake 4: Lacking training and understanding of accounting software functionality
Software and technology can be extremely rewarding for businesses for end of financial year. Cloud based accounting technology such as Xero can be hugely beneficial to ensure accounts are up to date to make end of financial year a less strenuous time for all. As an example, businesses generally do not have the data or software to monitor and track ongoing, fixed and variable costs, and ad-hoc expenses for the business. Utilising a accounting program like Xero to track cash flow, key expenditure, payroll, inventory, invoice and billing management and ATO payments such as PAYG and GST is a key necessity for a business. Further, by engaging an accountant who understands the accounting program and can advise on how to use the real time information to further grow a business, owners are more likely to be in better financial position at year end time.
Mistake 5: Inadequate record-keeping and a lack of supporting information for financial statements.
Unpreparedness culminates in another common mistake of not providing enough detail or supporting documentation. Accounts and records are required to be reconciled and updated. If this is not done regularly, then end of financial year may present a challenging time for businesses.
A useful example is in attempting to maximise potential deductions. Knowledge of expenses you can claim as a business are vital to ensuring maximum profitability is achieved for your business. However, records must be kept for all expenses claimed to ensure ATO compliance. Using Xero, you can assign photos of expenses to transactions which minimises paperwork and preserves time.
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William is a Paralegal, working in our content team, which aims to provide free legal guides to facilitate public access to legal resources. With a passion for commercial and IP law, his research focuses on small businesses, how small businesses can navigate convoluted legal procedures and the protection of intellectual property.