Many startup founders get frightened when they think about business invoicing and accounting – even though it is only through the paid bill that you get the earned salary for the service rendered.
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Business invoicing and accounting: 6 tips to make it simple
Actually, the topic is not so complicated. We have compiled 6 important tips for you below to get a handle on how to do business invoicing and accounting without the headaches — and without running into legal problems.
1. Write the invoice correctly
The invoice documents the service, delivery and payment terms. In most cases, customers are entitled to it. For example, under VAT law, you can refuse payment until a proper invoice is available. But when is an invoice “proper”?
For private customers, invoices are especially important in order to deduct certain services from the tax, to preserve any warranty claims or for other evidence. This does not give rise to any specific requirements for the content – apart from the fact that craftsmen should show the proportion of work separately.
The situation in the business environment is different. The deduction of input tax plays a major role here – and this is only available if the invoice meets the tax requirements. These include the following aspects:
- Name and address of the provider of the goods and the recipient of the invoice
- The tax number or GST or VAT identification number of the issuer
- The invoice date
- A unique invoice number. This does not necessarily have to be continuous
- Type, quantity or scope of the delivered goods or the service rendered
- The time or period of delivery or execution of the order
- The invoice amount, where the net sums may be separated by tax rates
- The value added tax attributable to the invoice amount, separately by tax rate
- Small businesses exempt from VAT/GST must indicate this in the invoice – for example, with the addition “According to Section 19 UStG, the invoice amount does not include VAT”
Under VAT law, companies have six months to create an invoice. Simplifications are available for so-called “small-amount invoices”: here, information on the recipient of the invoice, tax and invoice number is unnecessary. Also, VAT does not have to be shown separately. You may also need to know how to file sales tax if you are selling across multiple platforms.
While the tax office checks carefully when deducting input tax, the requirements for deduction stake are less stringent than operating expenses. In this way, an invoice may be excluded from the deduction, but it may still be recognised as an expense.
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2. Small business regulation does not always make sense
Small businesses can be exempted from VAT on request. However, the small business rule in accordance with Section 19 of the Value Added Tax Act is subject to two conditions:
- sales in the current financial year are expected to amount to a maximum of EUR 50,000 and
- sales in the previous financial year were less than 17,500 euros.
The emphasis is on the “and”, because both conditions must be met. Start-ups can estimate the expected turnover in the year of the foundation. But beware, if started in the middle of the year, the allowance decreases proportionately. In addition, the rule refers to the person of the entrepreneur. If there are several small businesses, the turnover is added together at the end. In addition, small businesses must clearly point out the scheme in the invoice in order to justify the lack of a VAT card.
The small business rule eliminates VAT advance declarations and VAT return. It will also be easier to determine profits. Finally, there is no need to distinguish between gross and net. In addition, small businesses can offer cheaper business with private end customers – who are excluded from the deduction of input tax – without tax.
On the other hand, the deduction of input tax is not applicable. This increases operating costs. Many small business owners also fear that the invoice notice could have a negative impact on the image – especially in business with corporate customers.
Is it worth it at all? It depends. Entrepreneurs who want to live off their business in the long term will soon have to generate more than 17,500 euros in annual sales. The avoidable advantage here is short-lived. In addition, in this case, the deduction for initial investments is completely eliminated. In the B2B environment, you can’t score with the regulation either. Here, sales tax is only a continuous item. On the other hand, the situation is different for part-time self-employed persons who provide services to private households, for example. For them, the small business rule can be beneficial.
3. VAT advance notification: meet deadlines!
There are taxes, behind which the tax office is like the devil behind the holy water. This category mainly includes VAT. Those who do not file the VAT advance declaration on time quickly get hefty late payment surcharges.
In principle, all companies, self-employed persons and freelancers are affected. Exceptions to VAT are only available for the export industry, certain health services, real estate and financial transactions. Those who do not fall into this or are exempt from VAT as a small business owner must take the VAT for the father state and pay it.
As part of the VAT advance declaration, companies declare to the tax office the VAT payment burden as the difference between vat and vat. As a rule, it must be created monthly.
If you find it difficult to meet the cut-off date, an application for a permanent extension can give you four weeks more time. However, a special advance payment must be made in return. There are also exceptions to the monthly levy.
4. Balance sheet or not?
In economic life, accounting is the measure of all things. Most companies are therefore obliged to have double accounting and commercial accounts. In principle, all freelancers are exempt from this – regardless of turnover and profit.
On the one hand, there is the actual tax: profit investigators do not pay VAT until the invoice has actually been paid. Since there are no claims, profits are only generated at the time of receipt of payment. This leads to a noticeable liquidity advantage. At the same time, there is some scope for profit shifting.
The second advantage is the significantly simplified handling. While accounting is a science in itself, the EÜR can be mastered even without study and years of professional experience. Complicated regulations such as provisions or accruals are spared. The annual accounts are much simpler. However, the latter could also be a disadvantage, as the EMR lacks the transparency and standardisation of the balance sheet. Partners, investors and lenders therefore often expect additional reports, which in turn equals some of the time savings. Since companies tend to be focused on growth, the narrow limits of the exception rule are quickly exceeded anyway – especially in terms of profit. The necessary know-how in the field of double accounting has to be built up with difficulty.
5. The tax advisor: indispensable for business invoicing and accounting?
The idea of simply leaving the accounting to the tax advisor has its charm: tax advisors are familiar with the subject matter and sometimes find additional savings potential. You can rely on professionally sound work, for which consultants are also liable if necessary. This is an important point for start-ups without prior commercial knowledge. So you can concentrate on your business – and leave the paperwork behind. Tax advisors also support their clients outside of tax law, for example in financing matters.
On the other hand, they don’t do their job for free. Although the Tax Advisors’ Fee Ordinance allows an initial assessment, the actual costs can also be significantly higher. In addition to the effort, factors such as profit or turnover play a role. It is difficult for start-ups to assess whether the time gained and a potential tax relief are proportionate to the fee. Moreover, outsourcing does not necessarily mean that everything unpleasant is off the table. Some preparatory work and a certain amount of coordination are inevitable.
On the other hand, those who take accounting into their own hands build up commercial know-how. This reduces reliance on external consultants. At the same time, do-it-yourself accounting provides more transparency: current business figures are immediately available. This gives company bosses more insight, for example on liquidity or outstanding recedes.
However, the issue should not be taken lightly. This is particularly true when accounting is compulsory. Without basic commercial knowledge and basic tax law, it is hardly possible to get the business invoicing and accounting done correctly. In addition, it is important to allow sufficient time for accounting. After all, accounting and tax programs are now so simple and secure that even newcomers can cope with them. A high level of automation ensures efficiency and fewer errors. Many self-employed people, small freelancers and small businesses therefore do not have tax advisors. In the end, the path for growth-oriented companies leads to the firm, but then it is mostly about special services, but not about expensive complete packages.
6. Save time and money with the right software for business invoicing and accounting
With accounting software to do business invoicing and accounting, founders can save not only time, but also a lot of money. In addition to the classic offer and invoicing, the software also requires automated payment matching with the account. In this way, open invoices can be identified quickly and, if necessary, a payment reminder can be sent – ideally automated. Especially in the first months after the start of the company, it is important to never lose sight of the account!
With a good software, you can also carry out the most important accounting tasks – such as document management or VAT pre-registration – with just a few clicks. The software automatically creates evaluations such as the revenue surplus account (EÜR) or the profit and loss account.
