Lesson 5: Stocktake and Reporting
It's now time to take a look around at your immediate surroundings and see exactly what your business contains. It's time to dig through every shelf, look behind every cabinet and scroll through all your desktop folders and determine the entire length and width of your business. Otherwise known as a stocktake!
Note: if your business is way too young to even be thinking about doing a stocktake, just keep this lesson in your back pocket for later.
Doing a yearly stocktake
You’re required to do a stocktake as close as possible to the end of each income year. But if you're smart and precise, this won't be as overwhelming as you may think.
Every business needs to account for the total value of their trading stock. And then do the same for the start of the next financial year. They're called 'closing stock' and 'opening stock'.
Your trading stock is anything your business produces, acquires or manufactures for the purposes of manufacturing, selling or exchanging.
This also includes any trading stock you use for private purposes. If you take an item of your business's trading stock for your private use, you need to account for it as if you had sold it and include the value of the item in your business's assessable income.
Plan the stocktake
You can't just do this sort of thing on a whim. It will require planning. This means doing the stocktake outside of business hours or even closing your business for a while.
Distractions are your enemy!
Shut out the world and focus on what's needed. this might seem like overkill, but consider reducing the use of mobiles, phones or music. Less chance of errors!
If you have employees helping you, make sure they know what needs to happen and where the stock, even off-site inventory, is located. Also, coffee and pizza might be good for them too.
Be prepared to double-check everything so you can be 100% positive of the result when it's all over. This includes returned items, reserved inventory and taking into account any missing items. Be sure to track down explanations for these exceptions because they're part of this process.
On the day, just be aware of some costs that may be incurred like accidental stock damage, extra employees and the possible loss of income that comes with doing a stocktake in the first place. Account for these possibilities and you'll have less surprises when the time comes.
Advantages of a stocktake
A stocktake is designed for you to meet tax obligations obviously, but there are tons of other benefits. Once complete, it will naturally give you a better understanding of your stock levels.
On top of that, you can identify what inventory you'll need to buy in the near future and provides a good opportunity to review your pricing strategy.
It's also a good way to detect any gaps in your stock, either through over-supply or (hopefully not) theft.
Reporting on profit and loss
Profit and Loss Statements show the income and expenses for your business over a particular period, which can be anywhere from 24 hours to a full calendar year.
Calculating your profit (or your loss) is simple: it's your income minus your expenses. You'll need to analyse those income and expenses to see if they've categorised as such and if the corresponding amounts make sense to you.
If you're clear on what precisely should be part of your Profit and Loss Statement, then any gaps or weird items will be more easily spotted.
If this happens, it might a good idea to get some help from your accountant or bookkeeper to see what a second pair of expert eyes can see. The same goes for any expenses that you're sure happened but for some reason don't show on the statement. Get them to check those too.
If you're wondering what items get allocated to a Profit and Loss Statement by mistake, here are the most common.
Loan funds received
|Owner’s personal expenses|
|Tax refunds received||Loan repayments|
|BAS refunds received||Tax payments|
|Sale of assets||BAS payments|
|Capital introduced into the business by its owners||Superannuation payments that have already been processed via payroll|
|Purchase of assets that need to be depreciated|
Is your business healthy?
What a journey we've been on! You've completed the How To Prepare for Tax Time course.
Hopefully, after all of our lessons, you now have a better foundation in place for your business for when EOFY comes. You have a bit more knowledge, you've made some contacts and things that once seemed too scary are now much clearer. More importantly, you should be able to answer the vital question: is your business healthy?
Congratulations and enjoy your EOFY. You deserve it!