Advice and tips for entrepreneurs

“Bookkeeping is the foundation of a company’s operations. Well-managed financial administration helps you track your company’s profitability, plan for growth and avoid unpleasant surprises,” says Tommi Virkama, Director of Startia.

Single or double-entry bookkeeping?

In Finland, whether you have the legal obligation to keep books depends on your company form and the scope of your operations. In practice, only private entrepreneurs – that is, self-employed individuals – can use the single-entry bookkeeping system. It is suitable for businesses engaged in small-scale operations with few business transactions.

Single-entry bookkeeping – that is, recording income and expenses – may be sufficient, for example, for part-time entrepreneurs, freelancers, sole entrepreneurs providing professional services, and businesses that have no employees or stock.

Double-entry bookkeeping is a common model in business

Double-entry bookkeeping is obligatory for limited liability companies, cooperatives, general partnerships and limited partnerships.

“Often a growing sole proprietorship can also benefit from double-entry bookkeeping, even though legally a simpler system is allowed,” Virkama explains.

In practice, double-entry bookkeeping becomes necessary when a business is growing, has a large number of invoices and transactions, employs people, maintains stock and equipment, or makes various kinds of investments.

In double-entry bookkeeping, every transaction is recorded in two accounts: where the money comes from and where it goes. This provides a much more accurate overall picture of the company’s finances.

Can I do my own bookkeeping?

Many entrepreneurs start out by doing their own bookkeeping. Today’s financial management software has made invoicing, receipt processing and reporting easier than ever.

Doing your own bookkeeping can work well if your business is small-scale, you don’t accumulate many receipts, you understand the basics of taxation and you have the time to familiarise yourself with bookkeeping and related subjects. For sole private entrepreneurs in particular, handling your own bookkeeping can be a cost-effective solution in the early stages.

“But I recommend you carefully consider whether you really have enough time to do this important task properly and thoroughly. Or would it be better to seek the help of an expert – that is, an experienced accountant – right from the start?” Virkama says and continues:

“A good accountant doesn’t just handle statutory filings; they often also assist with financial planning and tax optimisation.”

The areas where entrepreneurs most often run into trouble

Even if you have a good grasp of basic accounting, certain areas often pose challenges, especially for new entrepreneurs. Value-added tax is one of the most common stumbling blocks.

“Challenges often include, for example, the different VAT rates, EU trade, the sale of services abroad, deduction rights and the proper timing of various filings,” Virkama explains.

Errors may result in additional costs or requests for clarification from the tax authorities.

Many entrepreneurs are surprised to learn that not all business-related expenses are automatically tax-deductible. Ambiguities often arise from things such as the use of a car, a home office, phone and computer expenses, the distinction between entertainment and marketing expenses, and business travel. Some entrepreneurs claim too many deductions, while others fail to take advantage of them.

Company money is not your own money

In a limited liability company, in particular, the entrepreneur’s personal funds and the company’s funds must be kept strictly separate.

Errors often occur, for example, when dealing with shareholder loans, kilometre allowances, daily allowances and decisions regarding the distinction between salary and dividends.

Similarly, cash flow and profit are not the same thing. Many new entrepreneurs only keep track of their account balance.

“It may look like there are funds available in the company’s account, but VAT payments are still outstanding, advance tax payments will be due later, some large invoices are coming due, or payments from customers are overdue. Even a profitable company can run into cash flow problems if you don’t keep up-to-date on your finances,” Virkama notes.

A combination often works best

For many small businesses, the most effective solution is a combination where the entrepreneur handles the day-to-day operations and an accountant takes care of the actual bookkeeping.

For example, the entrepreneur may handle invoicing, collect receipts and supporting documents, and track sales and cash flow, while the accountant takes care of monthly bookkeeping, VAT returns, tax-related matters, interim reports and financial statements at the end of the fiscal year.

“This way, the entrepreneur can stay on top of their company’s finances while avoiding the most common mistakes and saving time for their actual business operations. It is also worth remembering that an entrepreneur is always personally responsible for their bookkeeping, even if they purchase the service from an accounting firm,” Virkama concludes.

• See if you can find a financial management service provider that is a good fit for your business among Startia’s expert partners