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.

5.3.2 Balance sheet

The annual balance sheet shows the value of the enterprise. Capital and assets are expressions of the totality of operational values. They are always equal in size. This is shown arithmetically in the balance sheet, where capital represents the totality of the items on the liabilities side and assets the totality of the items on the assets side.

Structure of the balance sheet

The balance sheet approach assumes that all financing transactions are reflected in the balance sheet. In business terms, the balance sheet is the comparison of the assets on the assets side and the capital on the liabilities side at a certain point in time. Over the course of several years, the balance sheet changes on the assets and liabilities side can be evaluated well.

The asset side of the balance sheet shows the investment of assets. It provides information about the financial resources in the form of fixed and current assets. The liabilities side of the balance sheet provides information on the origin of the capital. It shows the source of funds of the equity capital and borrowed capital in the form of liabilities or also provisions.

Example of a balance sheet:

5.3.3 Key Performance Indicators

In the annual report and also in the business plan,key figures are an important instrument for controlling and managing the company. The compilation and determination of key figures must be carried out on a company-specific basis. It must be decided which key figures are important internally and which could be used for company comparisons.