Financial statement for a sole trader or a small limited company in Finland
What are financial statements and why do they have to be prepared?
In a nutshell, the purpose of financial statements is:
- To show the performance of your business during the financial year
- To show the financial position of your business, i.e. the financial situation on the closing date
The financial statements, therefore, create information that is useful to you, your financial backers, the authorities, and other stakeholders in your business. It also serves as a basis for tax purposes.
Financial statements are prepared periodically based on your business accounting and, for small businesses, always include a balance sheet, income statement, and notes.
Additional requirements apply as the size of the business grows. For example, an annual report is not required for small micro companies.
The balance sheet is a report that tells you about the financial situation of your business. The balance sheet shows your company's assets, liabilities, and equity at a given point – for example, on the last day of the financial year.
The balance sheet has two sides, called assets and liabilities. The first term describes the assets of your business, and the second term shows how these assets are financed. The total of both halves should be equal.
The income statement, on the other hand, shows the income and expenses for the financial year. In other words, the income statement shows whether you have made a profit or a loss, while the balance sheet determines your company's financial position.
Together, they form a picture of the financial situation of your business. Even a business that is making excellent profits can be heavily in debt – or a wealthy business can be unprofitable.
In almost all cases, the financial statements of a small business or a sole trader are prepared by an accountant. The job requires time, skills, and knowledge of accounting and tax rules. For this reason, quite a few small entrepreneurs outsource the preparation of their financial statements to an accounting firm, even if they would otherwise manage their business's finances themselves.
Time limits for financial statements in a nutshell
The financial statements of a limited company must be prepared within four months of the end of the financial year unless the company by-laws provide a shorter period. The statement must then be approved no later than six months after the end of the financial year – in practice, approval means that the accounts are accepted at the general meeting of the limited company.
After the approval, the limited company has two months to file the financial statements with the Trade Register. The notification can be made either together with the tax return via the Tax Administration or directly to the Trade Register. The information must be reported even if the limited company had no business activities during the financial year.
Small sole traders are not subject to the obligation to notify the Trade Register.
There is no charge for filing the financial statement, as long as the information is reported in time. Any delay will result in a processing fee of 85€.
The National Board of Patents and Registration may remove a limited company from the Trade Register if, despite requests, it fails to submit its financial statements within one year of the end of the financial year.
Financial statements supporting business development
Unfortunately, financial statements are often seen as a compulsory evil, and a busy entrepreneur may not have the time to look at them in more detail. However, financial statements can provide valuable information that can be used to develop a company's business.
By looking at the figures in the financial statements, an entrepreneur can, for example, pay attention to items that are unusually large or have changed since the previous year. On the expense side, some items may increase insidiously, for example, due to changes in energy prices. The income statement in the financial statements makes it possible to detect these changes and influence them.
In addition, the entrepreneur can use the information in the financial statements to support long-term business planning. The figures in the financial statements can be used to calculate ratios such as financial solidity, liquidity, or profitability. The entrepreneur can compare these key figures with the average figures of other similar operators or their own industry. The figures can also be used to consider whether profitability should be improved by cutting costs or increasing sales prices.
When should a sole trader prepare financial statements?
The financial statement reporting requirements for sole traders changed following the reforms to the Accountancy Act that came into force at the beginning of 2016.
As a sole trader, i.e. an entrepreneur or practitioner, you are required to prepare financial statements if your accounting period is not a calendar year, or if two of the following conditions are met in the last and preceding accounting period:
- The balance sheet total is at least 350 000€.
- The turnover is at least 700 000€.
- The average number of employees during the financial year is 10.
Even if you are not obliged to balance the books, this does not remove the accounting obligation. You can always prepare financial statements voluntarily – and it is advisable to do so.
Other types of companies have stricter requirements for financial statements. Limited companies, cooperatives, general partnerships, and limited partnerships are always obliged to prepare financial statements.
Why should a sole trader prepare financial statements?
Although most small sole traders are exempt from the obligation to prepare accounts, it is always advisable to do so. There are several reasons for this:
- You will need financial statement-level information on your business figures to file your tax return. Not preparing the statement will not, therefore, reduce your workload. A self-employed person's tax return for the current calendar year, for example, must be filed latest by the 1st of April 2022. This can be done electronically in MyTax.
- The financial statement is also useful for calculating the sufficiency of advance taxes.
- The existence of a financial statement is often necessary when you are managing the financial, contractual, licensing, or lending aspects of your business.
- Often, entrepreneurs may also need financial statements for personal purposes. This may be the case, for example, if you are applying for a mortgage or an increase for your credit card limit.
It is notably more laborious to have financial statements prepared retrospectively compared to when financial statements are prepared at the end of the financial year. The increased workload is naturally reflected in the cost of the financial statements.
The preparation of financial statements requires a very good knowledge of accounting and related legislation.
By entrusting the accounting and preparation of the financial statement of your company to an accountancy firm, you will save hours of work and ensure that the financial statements are prepared accordingly to the legal sections. Meanwhile, it is also a good idea to change the accounting and reporting to a monthly basis to provide up-to-date information on changes in the profitability of the business.
Also, remember to take care of your part and submit all the required supporting documents in time for the accounting and financial statements. We will contact you well in advance to let you know what documents and materials are required from you for the financial statements.
How much does it cost to prepare the financial statements of a sole trader or a small limited company?
In most cases, the financial statement and tax return of a sole trader will be charged from the client as a single payment, and the price can be either fixed or hourly.
In practice, the cost of a financial statement for a sole trader is usually at least a few hundred euros. However, if the activity is very small or secondary, the price may be lower.
For limited companies, the cost of financial statements is generally somewhat higher than for sole traders.