Get a reading on your firm’s performance
TAX SEASON: USE FINANCIAL YEAR REPORT TO DETERMINE IF YOUR COMPANY IS GROWING
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