Closing your first financial year may feel like a big job, but with a clear step-by-step plan it is above all an opportunity to gain insight into your company. In this article you can read exactly what it means, why it is important, and how to close your administration step by step. This way you start the new year with a fresh start and prevent errors on your tax return.
Why it is important to close your financial year well
Closing your financial year is not only an administrative obligation, but also the basis for your tax return and financial insight. A properly closed administration ensures that your figures are correct, your profit is calculated correctly and you can report to the tax authorities with confidence. Moreover, it gives you peace of mind: you know exactly how your company is doing.
What exactly does closing a financial year entail?
For most self-employed people, the financial year runs from January 1 to December 31. If you started in the middle of the year, your first financial year will be shorter. At the end of the financial year, you collect all data, update your administration and close the balance sheet so that everything is ready for the income tax return.
The steps: close your financial year in 6 clear phases
1. Collect all the data
Make sure you have all purchase and sales invoices, bank statements, receipts, mileage registration, VAT returns and depreciation complete. Without complete data you cannot calculate an accurate profit.
2. Update your administration
Book all transactions up to and including December 31 in your accounting program. Check whether payments are properly linked to invoices and whether all cost items have been posted.
3. Check and correct
Go through your figures: are all the amounts correct? Do you have any double counting or forgotten invoices? A trial balance helps you detect errors.
4. Account for profit or loss
You process your profit or loss via your capital account (the equity of your company). This way you start the new year with a correct opening balance.
5. Close the financial year (provisionally).
Most accounting programs let you do a preliminary closing. You can then start working in the new year while completing the old one. You will make the final closing as soon as all figures are final.
6. Prepare your tax return
The figures from your financial year form the basis for your income tax return. Do you need help calculating what you need to reserve for taxes? Then use the ‘Set aside for your taxes’ template.
Common mistakes when closing the first financial year
Starters often make the same mistakes: forgetting invoices, incomplete administration or processing costs too late. Many entrepreneurs also overlook depreciation or close their financial year too early, while changes still follow. By doing your closing calmly and structured, you prevent these types of mistakes.
Checklist: what do you need to close your financial year?
- All purchase and sales invoices for the year
- Complete bank statements and cash statements
- Receipts and supporting documents of costs
- Mileage or trip registration (for car business use)
- Overview of depreciation and investments
- Submitted VAT returns
- Any corrections or chargebacks
What does this mean for your next financial year?
A well-closed financial year makes the new year easier. You can immediately start with up-to-date administration, know how much tax you still have to pay and have a better view of your profit development. Consider checking your numbers monthly in the new year instead of doing everything at the end — it will save time and stress.
Summary checklist
- Collect all administration up to and including December 31
- Book all transactions and check your balance
- Correct errors and process your profit or loss
- Make a provisional closing in your accounting program
- Prepare your tax return
Need help closing your first financial year?
Use the Starter Bundle for practical templates and manuals, including the template Set aside for your taxes and the e-book The Practical Guide for Starting Entrepreneurs. This way you know exactly what to reserve, which steps to follow and you can start the new year with peace of mind in your finances.
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