How to Prepare Your Business Finances for the New Year

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Small and medium sized enterprises are the lifeblood of British industry, making up more than 99% of the business population and employing an estimated 13 million people.

According to research in January 2024, there are 5.5 million small businesses in the UK with up to 49 employees and 36,900 medium-sized businesses employing between 50 and 249 people.

In comparison, there are only around 8,000 large businesses with more than 250 staff. This makes SMEs a key part of Britain’s economy, accounting for 60% of employment and 48% of the nation’s total business turnover.

The number of private sector businesses has increased from 4.5 million in 2010, with SMEs fostering job creation, innovation and greater productivity, delivering a vital contribution to the British economy.

As the end of the year approaches, small business new year planning should be uppermost in the thoughts of every owner and manager to ensure a smooth transition into the new year.

Cashflow management - small business priorities

There are a number of key financial tasks that every small business should tackle before the Christmas break, so creating an end of year checklist will ensure nothing is overlooked.

Complete end of year accounts to achieve a clear picture of your financial health – this will enable you to make informed decisions on how to move forward into the new year. Identify and resolve potential issues before they become bigger problems, such as if expenditure is gradually creeping higher than income, for example.

Understanding cashflow can help determine when to reduce expenses, control stock levels or invest. You can mitigate any issues caused by late and missed payments. It can help you to stay on track to meet financial goals, which in turn can attract investors.

Cashflow management also enables your business to adapt to changes, such as supply chain issues or rising prices, with the resulting stability helping you to preserve your credit rating.

Tax planning strategies

Many SMEs employ the services of a small business accountant to help with financial planning, implement year-end tax planning strategies and reduce tax liability. Strategies such as reviewing allowable business expenses, making capital purchases and contributing to pension schemes can all reduce tax liability.

Having an accountant can help you to avoid the common mistakes that small businesses make when closing their financial year. These can include failing to reconcile accounts, misreporting inventory and overlooking deductible expenses.

Setting realistic new year goals

Businesses must set realistic financial goals for the new year, based on their current financial status, to help guide decision making. This means evaluating your performance over the past 12 months to determine areas for growth and adjust your budget accordingly.

Adopt best practices when reviewing employee benefits and pensions before the new year, recognising the importance of investing in their development. Employees are every business's most valuable assets, so furthering their training and improving their skills should be paramount for the new year, as it boosts morale, increases productivity and enhances overall efficiency.

With the financial year running from 1st April to 31st March, the new year is an ideal time to review employee benefits. Define what your company’s benefits scheme should achieve to keep in line with objectives and ask for employee feedback before making any changes.

Review the costs of changes to keep within budget and make sure everything you propose is legally compliant and will enhance employee satisfaction. The benefits that should be considered include holiday entitlement; statutory sick pay; workplace pension; statutory maternity and paternity leave; and medical, dental and vision insurance.

Benefits trends during 2024 have included more flexible working arrangements; mental wellbeing; diversity and inclusion initiatives; and physical wellbeing.

How can business owners prepare for tax filing?

Business owners can best prepare for tax filing before the festive season by organising receipts, reviewing VAT returns and consulting with your accountant for any last-minute tax saving strategies.

Ensure your invoices are paid and collect any monies you’re owed when possible to keep the end of year accounts up to date - it’s preferable not to carry over outstanding balances into the new year.

Put a plan is in place to maintain financial continuity during the holiday period, when staff may be on leave. While you don’t want to be a Scrooge, don’t leave yourself short-handed either because you want to please everyone.

Create a marketing schedule as part of your business strategies and goals, so you have an idea of your future campaigns, organising a great one to kick off January to capitalise on the “new year, new start” feeling. Keep the team up to speed with your plans so everyone hits the ground running after the festive break.

Staying on top of cashflow to create a clear picture of your financial position provides the best chance of achieving resilience and guiding your business to where you want it to be.