4 Year End Mistakes to Avoid
Recognising that it’s always important for an organisation to be thinking ahead and preparing for tax season and other end of year (EOY) tasks is important. Luckily, there are some common mistakes that companies across all sectors make. This blog will help you kickstart your EOY checklist. Putting you in the best possible shape, not just to end the year, but also start the new one.
There is a common source of many of the year end mistakes that could be made by a business. Human error.
Any friction that is felt during this time might be traceable back to either:
Error. Having large amounts of documentation to process and complex procedures to follow can result in mistakes. Especially as some of the tasks can be repetitive, dull and time consuming.
Manual data entry. Entering data by hand, whether on paper or by typing into spreadsheets is a common source of end of year errors. Despite this, this method of data entry is still extremely common. If company finances are completed in this way, especially if done by non-experts, making mistakes is pretty much a certainty at some point.
Inefficient communication. Completing end of year processes might entail having to understand and explain business activities that occurred many years before. Having to spend time speaking to individuals to get information or context can be very confusing and inefficient. Especially if the individuals concerned don’t understand the value or importance of EOY processes.
Missing documentation. When it comes to end of year closing, missing documents can cause serious delays in expense reconciliation and other tasks. Ultimately leading to incorrect or incomplete paperwork and potentially missing out on tax credits because of it.
Effective bookkeeping and planning are essential parts of running a successful business. Being able to access and understand an accurate picture of your company’s finances is vital to strategic planning and competent leadership. Below are some common EOY mistakes that can be avoided to help your startup have a frictionless EOY.
For a business leader, running a successful business often means being across the detail in all different functions and areas of the operation. This can make managing work streams difficult and often the priority of tasks will be dictated by the immediacy of the business need.
However, for some tasks, such as filing tax documents and other bookkeeping responsibilities, when deadlines become immediate, it might be too late to complete them to the high standard needed. This is why organising your EOY efforts is one of the biggest steps you can take to ensure it’s a success, saving time, money and resources.
When it comes to tax season, the stress can be high enough without having to try and locate important documents, invoices and receipts at the last moment. Not having the time to complete these documents effectively can ultimately lead to an audit or fines. Getting it right in the first place, can save you time and prevent legal problems further down the line.
Being organised and ready for EOY might include using appropriate software solutions or partnering with professional advisors. Or it might mean delegating responsibilities to employees and ensuring that tasks are completed regularly throughout the year, avoiding a scramble at the last minute.
2. Bad bookkeeping
Operating a business without a proper bookkeeping in place is not just poor practice but can quickly become unmanageable and introduce problems to your business.
Putting off accounting work can be attractive, especially if there’s more pressing or customer facing work to be done. However, unless bookkeeping is kept up to date, it can be easy to lose track and then end up spending hours trying to pick apart the numbers and reconcile piles of documents.
When it comes to a smooth EOY, bookkeeping is really important and having a routine can help get you in a good position. As the EOY approaches your preparedness will be the sum of all the tasks completed through the rest of your financial year.
Bookkeeping can be broken down into daily, weekly, monthly and annual tasks. By making bookkeeping discrete and part of the normal functioning of your business, it becomes more manageable.
The benefits of good bookkeeping hygiene include helping you make smarter and better informed business decisions. Potential problems can be more easily identified and planned for. This makes for a healthier and more dynamic business, with important issues like tax liabilities and payments being part of planning, rather than a last minute scramble. Selecting the right bookkeeping software can help.
3. Not considering tax timings
Being a founder or part of the leadership team at a startup might mean that tax seems like a million miles from your to-do list.
But it shouldn’t be.
Throughout the whole year it’s important to be in communication with whoever is going to prepare the tax submissions for your business. This may be someone who’s internal to the company, but it’s even more important if it’s a third-party professional.
Understanding that tax can be a seasonal business, and specialists will be dealing with multiple accounts at once, can help you get a step ahead. By prioritising communication and effective information sharing, you can avoid EOY pain points caused by issues that could have easily been sorted out earlier in the year.
The timing of when a company closes its books can be managed in a way that makes tax preparedness easier. Some companies choose to close their books more than once annually, making the process more streamlined and less involved. This process is something some companies find helps as closing books annually while simultaneously preparing tax filings can be painful in terms of time and resources.
Whatever the process is for closing the books, having a closing schedule in place can help you avoid end of year errors. Such a schedule might include identifying important dates and tasks that have to be completed, and then the timings of reports and processes needed in order to meet these.
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4. Not asking for help
A major year-end mistake, often made by new and immature startups is to keep trying to manage the bookkeeping long after it’s clear that help is needed. Knowing when to ask for help is a skill, and some founders are happier to ask for help than others.
Far from being a sign of weakness, trying to do everything yourself during a busy EOY period and being overwhelmed isn’t efficient or useful. As a founder, time is limited and valuable, so instead of taking things too far, recognising a mistake early and employing someone who specialises in that area can be more productive (and profitable) in the long run.
EOY processes and tax filings aren’t easy, that is why a whole industry of accountancy service providers has built up around them. So, if things aren’t as straightforward as you thought, or if there’s just not enough time to focus on EOY tasks, get professional advisors in early.
By following the tips in this blog, you don’t just get to avoid making common end of year mistakes, but you also get the next fiscal period off to a great start. Being ahead of the EOY game can help business leaders move through EOY processes faster whilst also providing greater control and visibility. This has the added benefit of making strategic decision making much more effective.
There is no ‘secret’ to a frictionless EOY, in many ways it’s just common-sense. Be well prepared, organise processes, communicate proactively and ensure good practice throughout the entire financial period. Of course, if you recognise that you need help, then there are options out there.
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Here at Accountancy Cloud we provide startups with a combination of high-tech software and finance experts to support and maximise your end of year processes.
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Whilst we’re able to carry out the accounting basics, we can also provide so much more. We work to ensure that you see the bigger picture for your business. We'll help you look at how to optimise revenue or margins, where to invest in headcount, and when to go into a fundraising round.
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