Accounting for success
A classic mistake made by self-employed people is to “borrow” from day to day with the money that is in the account. Of course, you know all along that a large part of the money from sales does not “belong” to you and that eventually, you will have to pay it to the tax office or other institutions. In order to avoid experiencing any nasty surprises, ensure that your income and expenses are checked consistently. This documentation and review of all your business activities and processes that affect your company's assets (e.g. purchase, sale, rent, wages, etc.) is summarized under the term “accounting”.
Accounting is the alpha and the omega of running a business. Be sure to keep an eye on your financial plan!
Accounting means keeping books. With bookkeeping, you document all business transactions (income and expenses) occurring in your company in chronological and factual order and on the basis of documents (invoice, sales receipt or receipt). Your business transactions include, for example, (i) purchasing materials, (ii) paying wages, (iii) selling finished goods and many others. On this basis, you determine your profit and receive information about your liquidity (solvency) and your company's financial situation. You provide the tax office with the basic data for calculating taxes in the form of your tax return and your profit calculation. Practice has shown that orderly bookkeeping is a key success factor for a company. You can only make the right decision in every situation if you keep an eye on all business transactions and, thus, your company's financial situation.
You only need simple bookkeeping if you (i) practise a freelance profession or (ii) are not entered in the commercial register as a sole trader or partnership (GbR) and have a turnover of less than 600,000 euros in the calendar year or an annual profit of less than 60,000 euros or (iii) are registered in the commercial register as a sole proprietorship and have a turnover of less than 600,000 euros and a profit of less than 60,000 euros for two consecutive financial years. With simple bookkeeping, you only have to enter your income and expenses once and record them in a list sorted by date. You can determine your profit using an easy-to-create income-surplus calculation in which you subtract the expenses from your income.
You are legally obliged to keep double-entry bookkeeping if you (i) have chosen the legal form of a GmbH, UG, AG, OHG or KG or (ii) have voluntarily entered yourself in the commercial register or (iii) as a sole proprietorship or partnership (GbR ) not entered in the commercial register with a turnover of more than EUR 600,000 per calendar year or an annual profit of more than EUR 60,000. With double-entry bookkeeping, in contrast to single-entry bookkeeping, each business transaction has to be entered or posted twice. On the one hand, it is recorded on which account the money movement took place, e.g. in the cash register or a bank account. On the other hand, the offset account records for what the money was received or spent on, e.g. rent, office supplies or income from sales. In addition to income and expenditure, double-entry bookkeeping also includes expenses and income, as well as assets and capital. You close the double-entry bookkeeping with your annual financial statements, which consist of at least a balance sheet and profit and loss account. Depending on the legal form selected, further components are added.
Accounting does not have to be complicated
The best thing would be for you to acquire the necessary knowledge yourself. There are software programmes for the structured collection of receipts and checking for bookkeeping. Investing in tax advice is common and recommended. Therefore, seek tax advice early on and include tax payments and consulting costs in your financial planning. It is usually not an either/or question but a combination. Documents and information can be prepared. A freelancer can check and support bookkeeping with little effort. Tax advice continues to work with the sorted documents and information and advises on selected issues.
Important: Do not hand over this task to someone else completely. Look at your balance sheets at regular intervals with your accountant: how much money is likely to be handed over to the tax office as taxes? When are which repayments due? When are which expenses due? Has money been set aside for unplanned costs (repairs, renovation, new purchases, etc.)? From an expansion perspective, would it be necessary or helpful to employ staff? How much does qualified staff cost? Build up reserves! If you keep track of the books yourself, you can evaluate your business figures and results and assess the impact. The evaluation of this information, also known as "controlling", is the basis of your everyday planning, from purchasing to calculating prices for your product or service. Further information on the subject of controlling can be found in the topic booklet GruenderZeiten: Controlling.
We have compiled and checked the information on this page carefully. However, because circumstances change frequently, we cannot guarantee the correctness and completeness of all content. In particular, this page does not replace professional advice: If you have any questions about your specific case, please contact an accountant and/or tax consultant.