Financial management
Whatever sector your business operates in, financial management is essential to run it successfully. As a bare minimum, that means a bank account and accounting.
Financial management is a key part of business. It includes everything related to the business’s financial transactions: accounting, sale and purchase invoices, and payroll.
One of the first tasks when registering a business is opening a business bank account. Without it, financial transactions cannot happen. To open an account, you will need documents such as an extract from the Trade Register. If you are a sole trader, you too should open a separate bank account for your business.
Accounting: the basis of your business’s financial management
All businesses are obliged to keep accounts, even micro and small enterprises, although the size of the business affects the extent of the accounts. The accounts are the basis for things like the business’s taxation. Accounting is the financial “diary” of your business operations. You can use it to review the past and plan the future.
When you start a business, a good accountant or accounting firm is an important partner from the very beginning. You can of course do your own accounts if you have the skills to do so. However, it is recommended and in your business’s interests for an external — and educated, trained — person to perform this important, highly regulated function. You can then focus on the core of your business: developing and selling your own products and services.
Business accounting
As an entrepreneur, you are responsible for orderly accounts. Accounting also includes financial statement and audit.
Even if you outsource your accounting and other financial management to a professional, you must have a good understanding of the basics of accounting, even if only approximately. When your accounts are up to date, you can make plans and forecasts based on them, as well as budget cash flow and business development.
Your company’s taxable income and VAT filings are also based on the accounts. For example, VAT is often filed monthly, which in itself already creates a framework for monthly accounts. These timetables are important, as late filing attracts penalties. If you pay salaries, you must report them, no later than five calendar days after pay day and file a separate notification monthly. You report your business’s income annually.
Your accountant does his or her own work based on the information you provide. That is why you must ensure that the accountant gets all the necessary information, such as every invoice you send a client or receipts for business supplies.
As business owner, you are responsible for storing accounting material and vouchers for the statutory period: at least ten years from the end of the financial year for accounting material, and at least six years from the end of the year in which the financial year ended for vouchers, such as receipts and invoices. In some cases, the storage period maybe even longer. In practice, an accounting firm can also store the material if you so agree. Documents can be stored either on paper or electronically.
The Accounting Act and key accounting concepts
Accounting is regulated by such laws as the Accounting Act and the Value-Added Tax Act. (Value Added Tax Act in English). Note that the law is always interpreted based on the original text.) The regulations vary depending on business entity and business size.
The Accounting Act lays down in detail how companies of various sizes must manage their accounts. For example, the requirement to store vouchers and the deadlines for financial statements are defined in this Act. The guidelines below are based on the Accounting Act and established practices in the sector.
The accounts may take the form of either single-entry or double-entry bookkeeping. Single-entry bookkeeping may be enough for a sole trader. Refer to the Accounting Act to see your business’s obligation.
A financial year is usually 12 months. In a business with double-entry bookkeeping, the financial year can be different to the calendar year, but in a business with single-entry bookkeeping it is always the calendar year.
The first financial year may be longer or shorter than that, because the financial year begins on the day you register the business. The maximum length of the first financial year is 18 months.
In accounting, a voucher means any document which shows a purchase or sale transaction. For example, an invoice for a service provided is a sales voucher. Receipts, product catalogues and cash withdrawal receipts are also accounting vouchers.
The law specifies in detail which information vouchers must contain. Pay attention to detail, for example when sending invoices.
Based on the vouchers, your accountant will make an entry or enter the purchase or sales transactions into the accounts. The entries are the basis for a monthly accounting report on transactions, as well as for VAT and employer contribution calculations used to calculate your tax.
Can I do my own accounting?
You can, but you should think carefully before doing so. Think about what you want to spend your time on as a business owner. Accounting is regulated by many acts and decrees. Are you familiar with them or do you have the time and interest to study them? If you do not know the law well enough and you do your own accounts, you might make mistakes, such as incorrect accounting or missed filings. You might also fail to notice tax deductions you are entitled to if you do not know the legislation well enough.
How do I choose an accounting firm or accountant?
Incorrect accounting can cause a lot of frustration and expense. That’s why you should choose a competent accountant or accounting firm for your business.
A reliable professional is very useful: apart from your regular accounts, he or she can provide other financial management services, such as payroll.
You can look for a suitable accounting firm on the site of the Finnish Federation of Financial Service Companies, whose members are authorized accounting firms, meaning their operations are regulated. You can also get reliable contacts from the Finnish Enterprise Agencies. Other entrepreneurs may also be able to recommend their accountants or accounting firms. They might be able to offer tips on finding an accountant who knows your sector.
You can approach several firms and professionals for a quote and compare prices and service offerings. Digital programs make many work stages easier. Always sign a written contract for the services you buy.
Financial statement: a financial summary of the year
When the financial year ends, accounting entries are used to draw up a financial statement, which includes an income statement, balance sheet and notes on the accounts. A financial statement is a summary of the business’s money matters for the financial year.
The balance sheet shows the financial situation on the day of the financial statement, including such information as the business’s assets and liabilities. The income statement shows how the business’s profit or loss has formed. For comparison, the financial statement also includes figures for the previous financial year.
Notes on the accounts complete the statement, and these documents give an accurate picture of the business’s financial state. The size of your business has an impact on what kind of notes the financial statement should include. Small and micro enterprises need to supply fewer notes than large companies.
Under the Accounting Act, a business must compile a financial statement within four months of the end of the financial year. The business’s officers always sign the financial statement. A financial statement is an important document, which you will need for taxation but also loan and licence applications.
If you are a sole trader, a financial statement is not always compulsory, but in practice you too have to gather all the same data and calculations for your tax return.
When must a financial statement be submitted to the Trade Register?
Most companies need to submit their financial statements to the Trade Register maintained by the Patent and Registration Office. The financial statements in the Trade Register are public.
However, sole traders, partnerships and general partnerships only need to provide financial statements in certain circumstances. Sole traders rarely need to do so.
Audits: who has to do one?
An audit is a statutory duty performed by an auditor whom the business chooses.
It is generally mandatory for all businesses obligated to keep accounts.
An audit report contains a statement on whether the financial statement and possible annual report contain sufficient, accurate information about company operations, and whether the annual report and financial statement contradict each other.
With some exceptions, a business must appoint an auditor if it meets at least two of the following conditions for both the last financial year and the one before that:
- The final sum of the balance sheet exceeds €100,000.
- Turnover exceeds €200,000.
- The company has employed three people on average.
Note, however, that the articles of association may require an audit, even if the conditions above are not met.
A sole trader does not need to hire an auditor. By contrast, audits are obligatory in limited liability companies, limited partnerships, partnerships and cooperatives, if the aforementioned limits are exceeded. An auditor with the HT or KHT qualification must be hired.