Get a read­ing on your firm’s per­for­mance

TAX SEA­SON: USE FI­NAN­CIAL YEAR REPORT TO DE­TER­MINE IF YOUR COM­PANY IS GROW­ING

The Citizen (KZN) - - Business - Munya Du­vera

It also al­lows a busi­ness to gauge how well it is fair­ing against com­peti­tors.

As the new year swings into ac­tion and busi­nesses re­turn to full op­er­a­tions, many com­pa­nies will be hard at work preparing for tax sea­son. Not em­ployee tax sea­son, but rather com­pany tax sea­son be­cause the end of March marks the South African Rev­enue Ser­vice’s (Sars) of­fi­cial fi­nan­cial year-end for com­pa­nies.

Dur­ing this pe­riod many com­pa­nies will be sub­mit­ting their 2018-19 in­come tax re­turns and fi­nan­cial state­ments.

Each com­pany’s fi­nan­cial year then be­comes very im­por­tant but that begs the ques­tion as to what is a fi­nan­cial year and why is it sig­nif­i­cant?

First, a com­pany’s fi­nan­cial year does not have to mimic Sars’ of­fi­cial fi­nan­cial year.

A com­pany can choose which­ever month of the year it de­sires to set its fi­nan­cial year be­gin­ning and end, for ex­am­ple, be­gin­ning in Au­gust and end­ing in July the fol­low­ing year. How­ever, most com­pa­nies see it best to align their fi­nan­cial year with Sars for in­come tax re­turn sub­mis­sion pur­poses.

Nonethe­less, a fi­nan­cial year is es­sen­tially 12 months whereby a com­pany ac­counts for its fi­nan­cial per­for­mance.

It cal­cu­lates all its fi­nan­cial op­er­a­tions to cre­ate a fi­nan­cial report de­tail­ing ei­ther a profit or loss, its as­sets mi­nus li­a­bil­i­ties, rev­enue earned, other in­come, eq­uity value, etc. The idea is to paint a holis­tic pic­ture by glu­ing var­i­ous parts to­gether to de­ter­mine the busi­ness’ per­for­mance.

Fur­ther­more, you might have heard of the term “fis­cal year”. In most cases, fis­cal refers to a gov­ern­ment’s fi­nan­cial year. But es­sen­tially a fi­nan­cial year and a fis­cal year re­fer to the same func­tion, only the for­mer is as­so­ci­ated with busi­ness whilst the lat­ter with gov­ern­ment.

Un­for­tu­nately, en­trepreneur­s view a fi­nan­cial year as an ac­count­ing tool that is nec­es­sary for tax pur­poses and noth­ing more. But a fi­nan­cial year report is an ex­tremely valu­able tool that al­lows a com­pany to de­ter­mine its suc­cess or lack thereof, in­clud­ing gaug­ing its per­for­mance against pre­vi­ous fi­nan­cial pe­ri­ods.

Ideally, a com­pany should be grow­ing on a year-to-year ba­sis and there is no bet­ter method other than a fi­nan­cial year report to de­ter­mine whether a com­pany is grow­ing or los­ing value year on year.

Ad­di­tion­ally, a fi­nan­cial year report is a won­der­ful com­peti­tor com­par­i­son tool that al­lows a com­pany to gauge how well it is fair­ing against com­pet­ing com­pa­nies in the same in­dus­try. This is es­pe­cially true for stock mar­ket-listed com­pa­nies whose fi­nan­cial re­ports are public in­for­ma­tion.

There­fore, pay closer at­ten­tion to your fi­nan­cial year report and use it to judge per­for­mance and ad­just where ad­just­ments are re­quired to have a bet­ter 202021 fi­nan­cial year report.

Munya Du­vera s chief ex­ec­u­tive of­fi­cer at Du­vera El­group

Pic­ture: Shuttersto­ck

GET A GRIP. A fi­nan­cial year report will show a busi­ness owner where ad­just­ments are re­quired to have a bet­ter 2020-21.

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