How to prepare for annual accounts: your unshakeable frenemy

Annual accounts—a business owner’s unshakeable frenemy. No matter the size or type of your enterprise, be it a start-up, a multinational, or a charity—this task waits for you, year in, year out. These accounts are a snapshot of your business’s financial health, a tool for decision-making, and a requirement for tax compliance and stakeholder trust. The process can feel overwhelming, but fear not! With the right approach and tools, preparing your annual accounts doesn’t have to be a headache.

Spring cleaning for your finances

Think of preparing annual accounts as giving your financial house a top-to-bottom spring clean. You’re the detective-turned-cleaner, sifting through every nook and cranny to find and fix problems. Dust off those misplaced expenses, untangle misclassified GST entries, and ensure everything is in its rightful place.

Just like you wouldn’t keep a toothbrush in the kitchen, your accounting entries should also be well-organised. Every number must accurately reflect the state of your business. After all, it’s not about making things look better—it’s about making them look real.

Four steps to prepare for Annual Accounts

Step 1: Gather your tools and records

First, gather yourself with every piece of financial data:

• Sales invoices and receipts.
• Expense records, including bills and receipts.
• Bank and loan statements.
• Inventory and payroll records.
• GST returns, tax invoices, and other compliance documents.
• Anything else you might find relevant.

Next, pick your tool—be it trusty Excel or a snazzy software like Xero or MYOB. The right tool will save you hours. Whichever you choose, make sure all business transactions are logged and coded correctly. Although I would recommend Xero for its robust capabilities and user-friendly features!

Step 2: Mental preparation

This isn’t a task for the faint-hearted—or the sleepy, annoyed, or mildly tipsy. Brew a strong coffee, find a quiet space, and get into the zone. Your setup should include a large screen, a calculator, pen and paper.

Step 3: Dive into the accounts

Start with the Balance Sheet. Your first mission is to reconcile the balance sheet accounts:

• Bank balances vs actual bank statements.

• GST liabilities & payroll details vs IRD records.
• Loan accounts vs loan statements.

This part can feel like detective work, so channel your inner Sherlock Holmes.

Step 4: Move to the Profit and Loss Statement:
Once the balance sheet is spotless, tackle the P&L. Check every income and expense account. Are all transactions recorded under the right accounts? Are the GST details for each of the transactions correct? Did you accidentally classify a personal coffee run as a business expense (no judgment)?

Five pro tips for avoiding painful pitfalls

1. Track changes carefully: If you wish to adjust a transaction that has already been filed in the GST or tax returns, document it. Avoid editing past entries directly; instead, use journal entries to adjust mistakes. Otherwise, finding discrepancies later will feel like fishing in the Pacific for a sardine you caught last summer.
2. Stay on top of your Bookkeeping! Good bookkeeping is the foundation of accurate annual accounts. Keep your financial records organised throughout the year. Ensure that income, expenses, and GST are recorded accurately and in a timely manner. A tidy ledger today saves countless hours and headaches during year-end preparation.
3. Fixed Assets need special attention: Recording fixed assets can be tricky, and incorrect handling can skew your financial statements. If you’re unsure how to record or treat a fixed asset, don’t guess; seek guidance.
4. Keep accounting records: As required by Inland Revenue, businesses must keep accounting records for at least seven years. Too much storage space taken up? Digital records and cloud-based storage is acceptable too!
5. When in doubt, ask the experts: If you’re ever uncertain about a transaction, classification, or adjustment, please consult a professional. Whether it’s your accountant or a qualified advisor, their expertise can save you from costly mistakes down the line. And if you’re not sure who to reach out to, our team at Gilligan Sheppard are well-versed in situations like this and can help you with whatever situation you might be facing.

Preparing annual accounts isn’t just about ticking boxes—it’s about understanding your business inside out. Yes, it can be tedious, but with the right mindset and tools, it doesn’t have to be a drag. Think of it as an opportunity to declutter, discover, and improve. And remember, a clean set of accounts isn’t just compliance—it’s a badge of honour for your business.