What is a financial year-end?
All companies in South Africa are governed by the Companies Act, Act 71 of 2008. The Act requires a Company to have a financial year, which is usually a 12-month period with a start and an end.
Many companies in South Africa set their financial year-end as the 28th of February each year. The financial year consequently determines the tax year for a company.
The Companies Act further requires a company to produce annual financial statements within six months of its financial year-end.
Why is the financial year-end so important?
Your business has a number of different stakeholders, and each has its own interest in how it has performed over the past 12 months. At the end of the financial year, your business must prepare a set of annual financial statements to provide a standard report to all stakeholders on how your business has performed.
It is compulsory for small, medium and large businesses to submit signed financial statements to SARS on the submission of their ITR14 (company tax return). These are submitted via SARS eFiling when the ITR14 is submitted.
The financial statements must be signed off by the Public Officer. The minimum requirement of the financial statements is that they contain a Balance Sheet, Income Statement and Notes. There are certain exceptions to this requirement.
Stakeholders and how they use the financial statements
Owner of the business
As the owner, you have the greatest interest in how the business has performed. It would be very concerning if you do not know how much the business is making monthly or quarterly.
The annual financial statements should be reviewed by yourself yearly with the accountant to understand overall performance and how your investment has grown. You may also use the statements to attract new investors or borrow funds for growth.
Suppliers and lenders
They have an interest in how the business is performing to assess if they can expect further growth in purchases from the business or expect new requests for funding for growth.
When they see the financial statements, they are also assessing if the business cash flows are healthy enough for them to continue supply or lending in the future.
Customers
They do not often receive financial statements but they have an interest in the business’s performance. They want to know if the business will be able to supply them with the products and services they are used to buying in the future.
Employees
As unusual as it may sound, employees have a keen interest in the business performance as it directly affects their remuneration and wellbeing at work. Employees can personally plan long term when you, their employer is performing well and is able to pay market-related remuneration and benefits.
Businesses that perform well, generally are able to provide a healthy working environment for their employees which is also important to them.
Government
Is very keen on how your business performs because it relies on the business for job creation, opportunities for internships, learnerships and apprenticeships, community upliftment through corporate social responsibility initiatives and much more.
The tax authority is also able to determine the amount of tax it can expect from the business for that year.
Social groups
These groups are getting more interested in how businesses perform and how they are interacting and affecting communities. New trends in reporting globally are moving towards financial reporting on a business’s carbon footprint and climate change reporting.
This is important as consumers are also looking for businesses that operate in an environmentally friendly way.
What should you do at financial year-end?
Accurate and up to date records
All the bookkeeping must be up to date and accurate to ensure that year-end is smooth and seamless. This is the importance of having a professional do the work for you.
Count all your inventory (stock)
If you sell products or manufacture products, you must count the physical quantity of raw materials and finished stock you have on the last day of the financial year.
You will also need to count all the products that are in the process of being manufactured (if applicable).
Your accountant will apply the correct method for putting values to the quantities to arrive at the total value of inventory (stock) you have at year-end.
Check the condition of all your assets
Assets would be vehicles, buildings, furniture, equipment, etc. Your accountant will need that information to prepare the value of the assets your business has at year-end.
Review how much your customers owe you
This process should start ideally a month or so before the year ends. This balance should consist of customers that owe you for a month or two at the maximum.
You must assess whether the customers that owe you for three months or older will pay you before year-end or soon after.
If there is any doubt that they may not pay, you must inform your accountant at year-end so that the necessary adjustments can be made.
Your priority as a business owner should be to collect all monies owed to your business.
Review how much you are owing your suppliers
As much as possible, this amount should also be low. If you are owing suppliers for longer than three months, you must assess your ability to pay them before year-end or soon after.
Collect all documents required to reconcile all the balances
Obtain invoices for payments made and issue invoices for payments received. Call or email your lenders and obtain loan statements from them that reflect balances at the end of the year, so that the accountant can ensure the correct balances appear in the financial statements.
*This list is not exhaustive; however, it is meant as a general guide of to-dos at year-end for a small business. Check with your accountant on exactly the steps you should take in your business at year-end.
How can we help?
Our solution is a proactive approach. We ensure that your records are always kept up to date and accurate so that year-end is a breeze.
Throughout the year, we help you monitor how much your customers owe you and track how much you are owing your suppliers. We have regular conversations with you about your business and growth so that you’re not caught off-guard once a year.
Get in touch with us by sending an email to hello@santosbiz.co.za or Book a Call with us now. ?
