Bookkeeping – Accounting – Controlling
No matter how popular or unpopular it is – accounting is necessary to run a business. And it is also required by law and must comply with certain guidelines. The bookkeeping documents the financial transactions. The department of a company that is responsible for the bookkeeping is called accounting. Sometimes the terms accounting and bookkeeping are used synonymously, sometimes in this distinction. Another frequently used term is controlling. Based on the figures of the accounting, the controlling department “controls”, analyzes and strategically plans.
It is not only about adding up all financial movements and transmitting them to the tax office. You need the accounting to know exactly where the expenses actually go, how much money comes from where, which debts are present, how much money is needed when and much more. Only those who know the figures can plan and control strategically and know whether it is even financially worthwhile to run the company. Anyone who wants to set up a startup should be familiar with the basics and be able to interpret the figures, regardless of whether accounting is done in-house or has been delegated. Participation in an accounting course is definitely recommended. There are accounting programs for companies of all sizes that can help with the accounting. Some of them contain interfaces to the tax office or to personnel service providers. Self-employed persons are obliged to keep accounts and must keep the proofs for 10 years.
Depending on the type of business, a different type of accounting is required. Simple accounting can be used, for example, by freelancers or by small businesses that are below certain turnover or profit limits. You must submit Einnahmen-Überschuss-Rechnung (EÜR) (EÜR) on a prescribed form of the tax office. It is best to set up categories in accounting for different business transactions, which are also used for the EÜR. An overview of income and expenses and thus of surpluses (profit) or deficits is possible quite quickly in Simple Accounting. The cost of the accounting is much lower than with double-entry accounting.
If the sales are no longer so easily manageable, double-entry bookkeeping is usually better. If turnover or profit is above a certain limit, it must be applied; for certain legal forms (link legal forms) such as UG, GmbH and AG, it is mandatory. With double-entry bookkeeping, an annual financial statement with profit and loss account and a balance sheet must be prepared. This is usually done by tax consultants. In contrast to simple accounting, double-entry accounting also records business assets, debts and depreciation, etc. and thus provides a more precise indication of the financial situation.
Liquidity planning is intended to help keep the company “liquid”. Because even if the startup is successful and everything is going well, it can happen that it “collapses” if invoices cannot be paid on time. That’s why you should have a look at the expected expenses and income for several months in advance. It may be necessary to find sources of money, be it to “collect” outstanding invoices or to obtain additional outside capital in order to be able to meet payment obligations in time. To do this, you need to know when to expect which expenditures and revenues, from salaries and taxes to supplier invoices and payments or partial payments. A buffer for unexpected expenses or missing revenues should also be planned for.
Cost accounting gives you a clear view of income and expenses – and thus provides a good basis for controlling liquidity. There are different types of cost accounting, especially for smaller companies the cost-type accounting is suitable. This is best based on the accounts of the accounting department and divides them into further sub-accounts. This way you can calculate which costs are incurred in a given period and thus see the untaxed profit (hopefully). The cost accounting can be used as a basis for the price calculation of the product or service offered.
How much can a product or service be sold? In addition to the costs of production or provision, the competition and the customers play a major role. The pricing policy is strategically important and is controlled by marketing. Ultimately, the aim is to generate an optimal profit.
Not yet paid invoices from customers can make life difficult, especially for young companies. Invoices should be issued quickly and then you should not forget to keep an eye on the receipt of payment and, if necessary, to send a friendly reminder of the payment. In the case of large invoice amounts and orders for which a major advance payment is required, partial payments should be agreed with the client or other securities such as a bank guarantee should be provided.
The profit and loss account should be carried out regularly to keep track of the current financial situation and to check profitability. Revenues and costs are compared as well as expected income and expenses. It provides a short-term overview of the financial situation, but is not suitable for concrete information on liquidity and profit. Different types of profitability calculation help to determine how much profit is made with the turnover. They provide key figures on how high the profitability is and can be used as a benchmark against other companies in the industry.
At the beginning of a foundation there is usually the planning – but what does the reality look like? Do the actual income and expenses correspond to expectations? If one wants to check this, outstanding receivables or other processes that have not yet been completed can be taken into account. Individual headings or accounts, as in accounting, help to keep an overview and identify discrepancies. If these are identified, the next step is to analyze why this is the case, what effects it has and what action may be necessary.