Successful accounting: tips for founders

Before we get started: What is accounting anyway and what is it for?

Accounting is the term used to describe the organisational unit in a company that deals with bookkeeping. This in turn is the complete, chronologically and factually ordered recording of all business transactions. If your accounts are kept correctly, anyone who knows how to read them will be able to review and understand your entire business year in no time at all. However, if things remain unclear or errors are even found in the books, penalties may be imposed. All large companies and corporations in Germany are required to keep accounts. They must therefore keep so-called double-entry accounts and report regularly to the responsible tax office. These reports are important for the state, as they enable it to check whether a company is paying sufficient taxes. Most companies use the mandatory accounting system to their advantage as far as possible: they evaluate their own data and can make fact-based decisions for the future as a result. The precise view that accurate bookkeeping enables often reveals a company’s weaknesses or strengths that are not noticeable in normal day-to-day operations. Through this process of cost monitoring, which is usually referred to as controlling, companies ensure that they remain financially stable and successful in the long term. The bottom line is that bookkeeping and accounting serve two purposes: firstly, reporting to authorities and secondly, an overview of one's own company. 

What do you have to do to keep proper accounts?

Whether you use an accounting software or a tax consultant, or do your own accounting: you have to comply with quite a bit and understand certain correlations. Otherwise there is a danger of a rude awakening during the next audit. We have put together 4 accounting tips that are particularly relevant to founders and start-ups but which offer added value to almost all companies. If you follow this advice, your bookkeeping will be much easier. 

1.    Learn the rules of the game 

A great deal of importance is attached to correct procedures in Germany. There are precise regulations for which documents must be where and when. This ensures that business runs smoothly but sometimes poses a challenge for entrepreneurs. The good news is: You do not have to deal with the entire legal apparatus to run a successful business. But you should be very familiar with all the regulations that affect you, your business model and your company. There are also some requirements to be met with regard to accounting. Those who fail to do so must expect severe penalties. In particular, data protection and the "Principles for the proper keeping and storage of books, records and documents in electronic form and for data access (GoBD)" often lead to penalties. We have summarised the most important regulations in the GDPR (General Data Protection Regulation) and the GoBD in two short lists for you.

GDPR

• Transparency: You must educate customers and partners about how you use their information.
• Purpose: You may not use any data for a purpose that one of the parties concerned has not agreed to.
• Data limitation: You may only obtain the necessary personal data. 
• Erasure: You must be able to erase the data or parts of the data at any time if a data subject or the legislator so requires. 
• Training: You must train your employees regularly to inform them about the GDPR requirements. 
• Data protection officer: If your company has "substantial processing of personal data", you must appoint a data protection officer. 

GoBD

• Inalterability: From the time of the accounting entry, documents and data must be stored in such a way that they cannot be subsequently altered. Every change must be documented precisely and all versions must be retained in full.
• Completeness: All information relevant to tax must be retained in full.
• Traceability: All data must be ordered chronologically and logically in a comprehensible way.
• Retention periods: Balance sheets, receipts, preliminary and subsequent calculations must be retained for 10 years. A shorter period applies to commercial letters only, where 6 years is sufficient.
• Availability: All documents must be available in a machine readable format at all times over the required period.
• Punctuality: Accounting entries must usually be made within 8-10 days of the transaction. The final entry must be made by the end of the following month at the latest.

The following applies to GDPR and GoBD:

• Duty of disclosure: A company must be able to provide information at any time about how which data is stored, for what purpose, by whom, where and for how long and who has access to it. Not only can the data protection officer demand information but every customer can also ask at any time which of their data is stored and who has access to it. Also, under which conditions and within which period of time a data erasure takes or can take place must be communicated here. This duty of disclosure also applies with regard to bookkeeping: If an auditor asks how which data is stored by whom, where and for how long and who has access to it, the company must be able to provide this information.
    

Even if the GDPR has no direct influence on accounting, it must always be present at least in the back of your mind. Since a customer could always request the erasure of their own data, the accounting department must store all business transactions separately and the customer must be made aware of data which the company will continue to store for a long time for legal reasons. One simple example of this is the customer's bank details: this is personal and must be stored for 10 years due to the GoBD and must be in a machine readable format. If a customer requests that all data concerning them be erased, they must be made aware that this is only possible to a limited extent. Otherwise, this will result in gaps in the accounts, which may lead to severe penalties.