Is your small business getting ready to ring in the fiscal new year? There are many things to address, and it can be a busy time. Use this guide to help ensure nothing gets overlooked and you start out the new year on the right foot.
What is a Fiscal New Year?
A fiscal new year is a 12-month period in which a business chooses to report its financial information. It’s used for financial reports, external audits, and federal taxes. Although it may coincide with a January to December calendar year, the cycle can be set any way the company wishes, provided IRS guidelines are followed. For instance, sole proprietorships and single-member limited liability companies (LLCs) must follow the standard tax year. However, regular C corporations have a little more flexibility, asBusiness.com reports.
Shifting dates is more common when the company is impacted by seasonality. For example, large retailers such as Walmart and Target end their fiscal year on January 31, after the holiday shopping season concludes. Macy’s takes a similar approach and ends the fiscal year on the fifth Saturday of the calendar year. The U.S. government also follows a fiscal year that ends on September 30.
9 Tips for Preparing for Your Fiscal New Year
As you prepare for the fiscal new year, address the areas covered below.
1. Reconcile Accounts
Reconciliation is the process of comparing two sets of records to confirm that the figures match. While some businesses do this daily, most do it monthly, quarterly, or annually. Review your accounts before the year rolls over to ensure no issues follow you into the new fiscal year.
If you find any discrepancies, trace the documentation to confirm whether it’s a genuine error or if fraud may be occurring.
2. Review Your Financial Reports
Take a moment to review your financial reports, such as:
Cash Flow Statement
Profit and Loss Statement
Balance Sheet Report
Budget vs. Actual
Net Profit Margin Report
Accounts Payable Aging Report
Accounts Receivable Aging Report
In addition to ensuring your business is profitable, verifying it has sufficient cash flow is essential. Also, pay close attention to payables and receivables, as timely inbound payments are a sign of fiscal health, while timely outbound payments are required to maintain strong relationships with suppliers. Payment delays are often one of the first symptoms a business is or will be struggling with, even if it is presently profitable.
3. Revisit Last Year’s Goals
Setting fiscal goals helps keep your focus on metrics that matter throughout the year. Your business should have goals related to things like:
Return on Investment (ROI)
Ideally, you’ll review progress toward goals weekly or monthly. Progress should also be checked as you move into the new year.
Questions to Ask Yourself
Did we reach our financial goals?
What went well?
What could we have done better?
Should targets for the coming year be raised or lowered?
4. Minimize Your Tax Liabilities and Prepare to File
Businesses with a calendar year have until April 15 to file their taxes. Those who use an alternate fiscal year must file taxes by the 15th day of the fourth month following the end of their fiscal year.
Connect with a tax specialist before the year draws to a close to ensure you’re taking advantage of every possible deduction and begin preparing any required documentation.
5. Create Financial Forecasts
Once you’ve closed out the previous year or have a clear picture of how it will wrap up, you can begin looking at your fiscal new year. Forecasts are a part of that. They allow you to use your previous data to predict future numbers. There are three central financial forecasts you’ll likely want to perform at this stage:
Cash Flow Forecast
6. Identify Vulnerabilities
The fiscal new year is an excellent time to perform audits and identify potential threats to your company. That way, you can create goals around preventing issues and allocate resources accordingly. Some areas to monitor include:
Customer Bad Debt
Company Line of Succession
Business Continuity Planning
7. Review Your Financial Policies
Because you’re reviewing finances and are more likely to spot opportunities, the fiscal new year is also the ideal time to review all your financial policies.
For instance, if you discover issues when reconciling, you should establish new guidelines for frequency of review. If you discover customers are paying slowly or not paying at all, you may wish to set guidelines forconfirming customer creditworthiness before extending credit.
8. Create or Review Your Business Plan and Strategic Plan
More than two-thirds of SMEs don’t have a business plan,AccountancyAge reports. This is worrisome because failure to create a solid and realistic business plan is the second most common reason small businesses fail, according to Investopedia.
Ensure you have a solid business plan going forward. This document should include things like your executive summary, company description, and mission, vision, and value statements. It also explores how your company intends to operate at a higher level.
Your strategic plan supplements this. It includes things like your SWOT analysis, goals, and how you plan to reach your goals.
9. Establish a Budget and Reallocate Resources
Once you have projections, goals, and a clear understanding of your business’s challenges, review your spending plan for the upcoming year. Ensure each department has appropriate resources to support its goals, including people and technology.
Prepare for Your Fiscal New Year with Factoring
Invoice factoring can help with many areas of your fiscal new year planning, including:
Accelerating cash flow with instant payment on your B2B invoices.
Reducing slow payment and the risk of bad debt with client credit checks.
Stabilizing cash flow to make budgeting easier.
Providing working capital to address weaknesses and grow your business.