5.3 Planned balance sheet / annual financial statement

5.3.1 Annual accounts

At the end of each business year, a review of the financial statements, the annual financial statement, is required. The purpose of these is to establish for the owners and also the tax authorities whether and how successful the company has been.

The type and scope of the annual financial statement are determined by the legal form. In the case of start-ups, the revenue-surplus account or P&L and liquidity planning could be sufficient, while a business report with balance sheet is required for corporations.

It makes sense to prepare the possible annual accounts in the business plan in the form of a budgeted balance sheet for the first business year.

For corporations, the business year is concluded with the annual report: the annual balance sheet, a management report and a profit and loss account (P&L).

The annual accounts must determine whether there is a surplus or a loss and how the profit is to be used or how the loss is to be balanced.  

Possible use of the surplus:

§  Allocation to the statutory reserves,

§  Transfer to free reserves,

• the formation of reserves prevents the outflow of funds and represents a form of self-financing.
• Profit shares can be spent privately.
• Profit shares can be distributed as dividends to the partners (GmbH) or the shareholders of an AG,
• Profit carried forward - Carry forward of the residual profit for the account of the company.

Possible ways of dealing with losses:

• Offsetting of the loss against profit carried forward from the previous year,
• Reversal of provisions,
• Increase in equity,
• The shareholders' obligation to make additional contributions.

As long as the loss can be compensated by liquid funds, the company is not yet in danger of becoming insolvent. If losses raise the question of the company's existence, the owner or managing director must initiate insolvency proceedings.

Losses can lead to over-indebtedness of the company. The over-indebtedness of a company means that the company's debts are greater than its assets. In this case, the losses exceed the equity capital. Because the nominal capital may not be changed by annual results, any losses must appear as value adjustments on the assets side of the balance sheet as an underbalance. A capital increase is possible and may be necessary to avoid insolvency.

If an impending insolvency is not reported to the competent district court, the owner or managing director may be held personally liable.