How To Overcome Financial Year-End Challenges

The financial year-end is a crucial moment. It requires finishing business activities and making important decisions. This applies to both individual, private, and listed companies. It provides a chance to reflect and plan. Yet, it also brings challenges that need careful navigation. In this blog post, we will address common issues and challenges. These often arise during the end-of-year accounting. We will also explore strategies to overcome these challenges.

The list is incomplete, but most accountants will be able to relate to it.

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The financial year-end marks the end of the accounting period. During this time, businesses and individuals complete their financial statements. Most companies align their year with the calendar, ending on December 31st. Some companies may follow a different fiscal year. They align with their business operations cycle.

The Importance of End-to-End Accounting

• Financial Reporting and Compliance: The financial year-end is crucial for financial reporting. It is when businesses prepare their income statements, balance sheets, and cash flow statements. The organisation’s financial health is revealed in these reports. Meeting regulatory compliance requirements depends on them.
• Tax Planning and Compliance: Individuals and businesses must complete their tax-related tasks before year-end. This includes tax planning and compliance. Calculating taxable income is part of this task. Special tax exemptions must also be considered. Government contributions are another aspect that needs attention. Necessary deductions must be made. Finally, compliance with tax regulations is essential. Proper tax planning can save you money and prevent last-minute tax problems. Financial and fiscal year-ends are tied to tax deadlines.
• Performance Assessment: The financial year-end is a chance to check a business’s performance. Companies can analyse their financial statements to identify areas of strength and weakness. They can also analyse company assets and debts for the same purpose. This enables informed decision-making for the future.

Year-End Challenges

The year-end closing process presents challenges that intensify and stress the accounting team. This list includes strategies to reduce these pressures.

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Time Constraints and Procrastination

Time is often the enemy during year-end accounting and financial reporting. Procrastination and delays in starting year-end closing can cause chaos. The deadline for the company’s financial statements and reports approaches.

December includes the Christmas holidays. Most people prefer spending time with family instead of working. The accounting team feels the same way.

December is the final month of the year. It requires extra carefulness and careful planning. This is because it finalises the fiscal year. This applies to companies with a year-end in June, March, or July.

Strategies:

• Start the year-end process early to allow ample time for reviews and corrections. Review balance sheet reconciliations a month before December ends. This will help cut down on analytics.
• Companies can use a “hard close” with auditors to tidy their books. This helps increase the accuracy of financial statements and reduces year-end effort.
• Identify critical tasks through a year-end accounting checklist or closing schedule. Focus on these tasks. They address important aspects like income statements, cash flow statements, and revenue recognition. These tasks are often under the auditor’s spotlight.

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Data Accuracy and Reconciliation

Maintaining accurate financial records can be challenging for businesses with many transactions. Reconciling accounts can also be difficult, especially with manual data entry. Limited resources make this even more challenging during the Christmas holidays.

This is valid for customers and suppliers. This applies to reconciling supplier statements and confirming debtor statements. It also covers unpaid debts, cash receipts, and business expenses.

Tax Planning and Reporting

Businesses that have complex financial structures face a significant challenge. The challenge is to optimise tax liabilities and ensure accurate reporting. The pressure is high.

Taxes can only be finalised after financial statements are completed. Looking back at the previous points, accountants face pressure. The tax department faces pressure as it relies on finance.

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Strategies:

• Develop a tax planning strategy, considering available deductions and credits.
• Seek the expertise of tax professionals to navigate complex tax scenarios.

Employee Payroll and Benefits

Managing payroll can be challenging, especially with changing labour laws. Handling the benefits adds another layer of complexity to the task. Compliance with changing labour laws is also a crucial aspect.

Year-end presents challenges for payroll. These challenges include financial year reporting, such as W-2 and 1099 forms in the US. It also involves accurate holiday accruals for audit purposes. Additionally, it includes posting outstanding expense claims to recognise liability.

Strategies: 

• Install automated payroll systems to reduce errors and streamline the process.
• Regular Audits: Conduct regular audits of payroll records to identify and rectify discrepancies.
• Conduct periodic (monthly or even quarterly) reviews of holiday accruals

Budget Variances

Budget variances that are not anticipated can cause problems with financial plans and strategies. In September, many businesses created a 3rd Quarter Financial Forecast, FORQ3. The board receives a forecast of the year’s financial results. This forecast sets their expectations.

Unless your business is miles ahead of budget in November, you will feel the pressure to deliver in the last month of the year.

December is a “short month” with only three calendar weeks. Customers and suppliers are currently on holiday. This makes it challenging to achieve improved financial results. Retailers that have Christmas sales are facing an extra challenge. The “hockey stick” revenue causes this challenge.

Strategies:

• Conduct a detailed analysis of budget variances to identify root causes.
• In November, create a “December flash” summarising the profit and loss statement.
• Also, create a “December flash” summarising the balance sheet. The focus should be on sales and EBITDA, using available information about December.
• Track progress in December to identify any potential issues early. Use your accounting software during this critical period.

Communication and Stakeholder Management

Effective communication is required to keep stakeholders informed during the year-end process. This includes employees and investors. During the festive season, expect delays; thus, plan.

Strategies:

• Foster open and transparent communication to manage expectations and build trust.
• Update stakeholders on financial performance.
• Notify them of any changes in strategic direction.

Cash Flow Management

During the year-end, businesses with seasonal fluctuations must optimise cash flow.

Cash balance and working capital are critical indicators of business health. Careful management and constant monitoring of bank statements are necessary.

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Strategies:

• Negotiate early payment terms with suppliers (if you are cash-rich)
• Incentivise early payments from customers (if your EBITDA is on track)
• Install robust cash flow forecasting to anticipate and address liquidity challenges.

Year-End Check List

Below is an essential guide. It is a checklist for accountants and finance personnel. The checklist helps them prepare for the “year-end push.”

• Conduct a thorough review of all financial transactions for accuracy. Review bank statements, asset accounts, cash accounts, and credit card statements. Also, review other financial reports.
• If your business owns assets, update depreciation schedules. Review intangible assets and amortisation schedules. Prepare an asset impairment assessment.
• Conduct a physical inventory count with auditors present. Adjust inventory records to reflect accurate values.
• Review outstanding invoices and bills. Follow up on overdue payments. Add accounts payable. Assess the provision of debt on accounts receivable and adjust if necessary.
• If your organisation capitalises on R&D, account for all expenses. You need to assess the future financial performance of the product line. This will help you determine if your research and development costs should be recorded as fixed assets.
• Review your Capital Work in Progress GL account to assess whether assets need depreciation.
• Verify payroll records for accuracy. Ensure compliance with tax regulations for employee benefits. Keep annual leave accrual up-to-date.
• Tax planning: ensure all eligible deductions are claimed and corporate tax provisions are accrued.
• Revenue Recognition: ensure that revenue “cut-off” processes are in place. Revenue is accounted for, and there is appropriate record-keeping. Auditors will test the last ten transactions for the current year. They will also try the first ten transactions for the following year. This is done to ensure accuracy. If needed, they will include accounts receivable.
• Review your accrual and prepayment schedules to ensure they are correct. Pay attention to services received that have not been invoiced for year-end accruals. Liaise with different departments, if necessary.
• Watching forex movements in December is essential if you are operating in a volatile environment. This will help you avoid any unpleasant surprises.
• Ensure all your audit schedules are prepared well in advance if your business is subject to audit. This will simplify the auditors’ work and speed up the sign-off of the accounts.
• Verify if all financial requirements are being followed. Take care of any unresolved compliance concerns.

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Conclusion

The year-end closing is vital for businesses and individuals. They can assess their financial health, plan for the future, and meet regulations. A structured approach and strategic measures can make the year-end process less stressful. It can also become an opportunity for growth and improvement. Whether you own a business or pay taxes, approach year-end closing carefully and plan. This sets the stage for financial success in the coming year.

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