Preparing Your Company for Financial Year-End
Financial Year End (FYE) can be an overwhelming and stressful time for a business. For most companies in South Africa, the new fiscal year has only just begun and thinking of FYE may be something you only plan to do again in a few months’ time. However, being prepared and consistent with your financial records all year round makes life much easier when the next deadline comes around.
What is involved in Financial Year End?
Financial Year End is the process of “closing the books” of the past fiscal year by reviewing, reconciling, and verifying all transactions and elements of the company ledgers. The goal is to prepare a final financial statement for tax purposes, in case of an external audit, but the time is also used to assess annual profit or loss and to reflect on the performance of the company. The results will determine the tax amount payable to SARS from the business. Listed and public companies will also publish their annual financial statements so that investors can be informed about their investments.
When is FYE?
The financial or Fiscal Year-End of a company does not necessarily correspond with the calendar year or the government’s tax year (1 March to 28 February). This means that company founders can choose an annual year-end closing date that works for their industry, as long as it remains consistent. Many companies in South Africa tend to align their company’s financial year-end with the SARS personal tax year dates, meaning their financial year-end is on the last day of February.
Potential Problems with Financial Year End
Closing off a company’s accounts for its 12-month business year can be a complicated and challenging process, but a very important one. Some common issues that could make financial closing difficult:
- Financial records not maintained throughout the year
- Missing or misplaced documents such as receipts and invoices.
- Incorrect entries due to human error.
- Time-consuming manual data entry.
- Ineffective communication between various parties.
- Insufficient knowledge regarding required documentation and processes.
Tips for preparing for Financial Year End
How can companies prepare effectively for FYE?
- Keep your accounting records up-to-date throughout the year. The most useful habit to make end-of-year accounting less frantic is to have your accounting records updated on a regular basis during the entire fiscal year. This way most reconciliation has been done, so that time can rather be spent checking for accuracy, preparing financial reports and planning for the next year.
- Keep track of all-important deadlines. Create a schedule with dates for all crucial deadlines and the tasks that must be completed for each one. Some of the most important dates and deadlines are listed below.
- Collect outstanding invoices & receipts. Ensure that employees are aware of which documents are required to be submitted and allow for delays. You could also consider investing in software with a digital receipt capturing function allowing employees to upload expense receipts instantly.
- Check your inventory levels. Doing a stocktake/ inventory check ahead of time (where relevant) helps to make your Financial Year End run more smoothly and ensures accuracy. Check that your expiry dates are accurate and that you have an accurate idea of your available stock.
- Assess accounts payable and receivable. Your accounts payable and accounts receivable reports also need to be prepared and checked. Start by reviewing what should be paid and what is due to be received as income within the current financial year. This will help to chase outstanding payments, ensure debts are settled and income due is received on time. It is also an opportunity to consider bringing forward or postponing transactions to the new year to reduce taxable income.
- Plan and prepare for taxes. One of the core reasons for the financial year-end process is to be able to calculate the amount of tax your company is liable to pay. So naturally planning your tax is important before completing your FYE. As mentioned, tax planning allows you to accelerate or delay transactions to save on taxes. It is also essential that you or your accountant are aware of any relevant tax law updates – to allow you to capitalise on a positive change or be prepared for a negative one.
- Make use of helpful online software. Having an online accounting software system makes preparation for Financial Year End so much easier. Information from all the different areas of the business can be captured in real-time during the financial year. As the system is fully integrated, all information will automatically be updated on all connected accounts.
Dates and deadlines to consider during the financial year:
For companies with February year-ends the following annual deadlines apply:
- Second provisional tax returns to be submitted by End of February each year
- Annual Financial Statements to be prepared by end of August
- If still outstanding, the previous year’s income tax returns to be submitted by 28 February
Some other dates and ongoing submissions to keep in mind (not necessarily applicable to all companies):
- PAYE: 7th of each month.
- VAT: Due no later than the end of the month, but easier to complete by the 25th.
- Companies tax (CIT): One year after your company’s year ends, for example, February year-end 2022 will submit February 2023.
- Provisional tax: 1st provisional tax: 6 months after year-end; 2nd provisional tax:
12 months after year-end; 3rd provisional top-up payment: 18 months after year-end.
- EMP501: First interim submission: October. Full annual submission: May.
- Dividend tax: The tax withheld to SARS on or before the last day of the month following the month in which the dividend was paid.
- Compensation Fund ROEs: The deadline for submitting the ROE is officially 31 March each year, but generally extended to 31 May.
Benefits to staying on top of Financial Year End administration:
Closing the books accurately at the end of the financial year is legally required. That said there are many other advantages to being thorough with the process and sticking to the various deadlines, rather than simply ticking compliance boxes.
- Drafting your financial statements on time ensures that all your accounts are up to date.
- FYE is the perfect time to reflect on the past year’s business, analyse what was successful and where changes are required and consider tax planning for the year ahead.
- It also allows business owners to see trends in their business and do more accurate budgeting and forecasting for the new financial year.
- Being tax compliant is also beneficial for fundraising or for a tendering process.
- Information required for when an investment opportunity arises is already available to make the decision-making process easier.
How can we help?
At Exceed we offer a comprehensive range of financial services to assist your company manage FYE with ease. If you require assistance with any part of the FYE preparation, throughout the year or when the year-end deadline looms, do not hesitate to contact us. For more details on various accounting and auditing services we offer: