7 Items Small Businesses Need on Their Year-End Accounting Checklist

The end of the financial year can be stressful for small business owners, but our year-end accounting checklist will help you transition smoothly into the next! Below, we explore what you need to do to organise your year-end finances.

Peter Adams, Kristina Fox Last updated on 05 April 2022.
7 Items Small Businesses Need on Their Year-End Accounting Checklist

For some small business owners, the end of the financial year means sleepless nights mulling over your tax return. Getting your finances in order can be daunting at the best of times, but a deadline can make it overwhelming.

A good way to tackle the end of the tax year is to create a year-end accounting checklist.

Below, we set out seven steps you can take to prepare for your business’s new financial year.

1. Get your accounts in order

First things first: how organised have your accounts been this year?

If you keep your finances in order day in, day out, then making sure they are suitably prepared for your tax return shouldn’t be too difficult.

On the other hand, if you’ve taken a more laid-back approach to your bookkeeping, you could have a greater challenge on your hands. You’ll need to gather important documents, such as invoices to clients, bills you’ve paid and receipts for business expenses, such as travel or company equipment.

If you are finding it difficult to get your accounts in order, you could hire an accountant to help manage your tax returns. Alternatively, you may want to use specialist accounting software, which can integrate with your business bank account and help you organise documents and track your transactions.

It may not be the most exciting task in the world, but getting all your financial information in one place will put you in the best position to assess your business’s finances and plan for the year ahead.

2. Really understand your finances

With your bookkeeping in order, the end of the financial year is the perfect time to really get to grips with your income and expenses.

Firstly, it’s crucial to make sure your card statements match what your accounts are showing, as this ensures none of your transactions are missed, double-counted or erroneously classified.

Go through every item on your balance sheet and income statement, line by line, to make sure that every record is correct and that your sums reflect the year’s transactions. It’s important to make sure all your expenses are accounted for so that you can accurately calculate your profit or loss. If you miscalculate, you could end up paying too little or too much tax and you may incur a penalty.

Not only is this good practice, but it will also stand you in good stead if you’re looking to take out any business funding in the coming year, such as a small business grant or a business loan. This is because lenders will want to gather information on your business finances, and any inaccuracies (or omissions) could affect your application.

You also need to check whether your accounts payable and accounts receivable are up to date. If clients owe you money, this could stunt your cash flow. On the other hand, if you owe money to suppliers but don’t realise it, you could end up with an inaccurate view of your finances.

You may also want to compile a cash flow statement, which shows your opening and closing cash within a specified period.

To prepare a cash flow statement, summarise your company’s inflows and outflows for the following three areas:

  • operating activities, such as expenses and revenue from your regular day-to-day business activities
  • financial activities, such as loan repayments and payments of any partner or shareholder distributions or investments
  • investing activities, such as assets purchased and assets sold

Operating activities could include expenses such as paying for website hosting for a blog or for renting a market pitch. Whereas your revenue may include money from sponsored blog posts or profits from selling handmade items from your market stall.

As for financial activities, this could include loans taken out to fund the growth of your business. For example, paying off a loan used for a new camera to create video content for your blog, or the repayments for a start-up business loan.

To transport your goods to your market pitch, you may need a van. Buying a new van outright (strictly for business use) would be an example of an investing activity. Selling your old vlogging camera and putting the money from the sale back into the business also counts as investing activity.

Reviewing your transactions, balance sheet and cash flow statement can help you thoroughly assess your business’s financial situation. Knowing this inside out will stand you in good stead when it comes to planning for the next financial year.

» MORE: How to create a cash flow forecast for the year ahead

3. Create a budget

Your business budget is an estimate of future expenses and income for a given period. It’s a good idea to break it down into smaller, more manageable chunks; you could divide it quarterly, or even monthly, as well as between departments (if applicable).

It’s also worth sharing your budget with key members of your management team, especially those working closely with the funding for certain areas of the company. If you don’t have a team, then it may be worth working with a trusted friend, family member or mentor, for example.

Consider how you allocate budget across your company. You could set aside individual pots for key areas, such as sales, marketing, talent and tech, while remembering the basics such as business insurance and business energy.

Finally, compare the budget you set this time last year with this year’s actual expenses and income. How accurate were you? If you were considerably off the mark, something might have gone awry and a rethink of your budgeting could be in order. Doing so can also help you to understand where you might be at risk of making spending mistakes in the future.

4. Check your tax obligations

If you’re a sole trader and you earned over £1,000 in the last tax year, you will have to pay your tax bill through self-assessment. You can find more details on Gov.uk.

If you run a limited company, you will have to pay Corporation Tax on your business’s profits and submit a Company Tax Return to Her Majesty’s Revenue & Customs (HMRC). You also need to file annual accounts with Companies House.

In most cases, you must pay any Corporation Tax you owe – or tell HMRC that you have nothing to pay – within nine months and one day of the end of your previous accounting period (your accounting period is usually the same as your company’s financial year). The same deadline applies for filing your annual accounts with Companies House.

On the other hand, the deadline for submitting your Company Tax Return is normally 12 months after the end of your last accounting period.

The rules are slightly different if it’s your first year of trading. You can find out more about what you have to do for your first tax return on Gov.uk.

If you have questions about your tax liability, it may be worth seeking financial advice from an expert, such as an accountant or tax adviser.

Alternatively, if you need help with Corporation Tax, you can contact HMRC:

  • By phone: call 0300 200 3410, or +44 151 268 0571 from outside the UK
  • By post: Corporation Tax Services, HM Revenue and Customs, BX9 1AX, UK

5. Take an inventory

This one’s pretty straightforward. If you sell products of any kind, counting them and creating an inventory enables you to identify any errors or omissions in your records.

Remember to keep track of broken or missing items. This can help you factor replacement costs into your business budget. What’s more, if your inventory showed that a particular product was frequently faulty, you could consider changing suppliers or finding an alternative to save money on replacements.

When taking your inventory, don’t forget to check the supplies and items you use to run your business. For example, this could include tools and parts if you’re a builder or plumber, or your laptop and camera if you work in social media.

6. Set goals

Running your own small business takes drive and ambition. Setting yourself goals for the future can help you to keep looking forward and striving towards better things for your business.

However, first look backwards and reassess. Consider last year’s goals. Did you achieve them? If so, to what extent? If not, what challenges and obstacles prevented you from doing so? You can use the answers to these questions to inform your targets in future.

Now you can set goals for the coming year. Having goals is an essential part of growing any business. Regular and realistic targets will keep both you and your workforce motivated, focused and confident. Ensure your goals are well-defined – if they are ambiguous it will be hard to know when you’ve met them.

You may want to follow the SMART method of setting goals, ensuring each target is:

  • S – Specific
  • M – Measurable
  • A – Attainable
  • R – Realistic
  • T – Time-bound

Structuring your goals according to these criteria may make it easier to figure out a strategy for the new financial year. You’ll have a clear idea of which objectives you want to meet, when you want to meet them, and how you’ll know you’ve succeeded.

7. Reflect on the business as a whole

As a diligent, hard-working owner of a small business, you can easily find yourself so caught up in daily operations that you begin losing sight of the bigger picture. When you seem to be spending every waking moment replying to emails, negotiating deals, speaking with clients or customers, fulfilling orders and keeping up morale, it’s understandable to feel there is simply no time to take a moment and reflect on a higher level.

The truth is, though, you need to find that time – otherwise, your business could plateau. These periods of reflection are as crucial to the prosperity of your company as the nitty-gritty, day-to-day tasks, so make sure you allot some time often, to sit down to work out how to keep the business on track to meet its goals.

Get on top of your finances today

Year-end is the perfect time to reflect on your business. Your company is another year older and (hopefully!) another year wiser. Following a year-end accounting checklist will not only make sure your finances are in order for the new financial year, but also encourage you to step back from the business and take a broader, more objective perspective on how you are doing and where you are heading.

» MORE: Resolutions for the new tax year

About the authors:

Peter reports on a number of areas in the personal finance sector, with a particular interest in supporting businesses and individuals in the UK services industry. Read more

Kristina is a writer at NerdWallet. A recent graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more

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