Accounting is the foundation of financial health for any enterprise. It allows you to track cash flow, analyze financial performance, and make informed management decisions. For small businesses, accounting holds particular significance. It helps optimize expenses, avoid tax errors, and ensure financial transparency. Here, we’ll explain how to manage accounting if you decide to start a business in Georgia.
Key Aspects of Accounting
Accounting is a system for collecting, recording, and keeping track of income and expenses used in the business activities of an enterprise. It takes into account the tax obligations of the country where the enterprise operates. Consider the following:
- Assets
- Liabilities
- Income
- Expenses
The primary goal of accounting is to provide users with reliable and comprehensive information about the financial position of the enterprise. This information is used for decisions related to financial management, investments, and business development.
Mandatory Elements of Accounting
For proper business operations, you need to:
Maintain a Cash Book: This document records all cash transactions. The cash book must be numbered, bound, and sealed. Entries should be made daily.
Track Income and Expenses: This includes revenue from the sale of goods, works, or services, as well as other activities. Expenses include costs related to production, sales of goods, performance of works, or provision of services. Income and expense tracking is done through relevant accounting accounts.
Inventory Management: This includes tracking raw materials, finished products, and other assets intended for sale. Inventory is recorded in appropriate accounting accounts.
Wage and Tax Deductions Accounting: This covers remuneration paid to employees and mandatory payments to the budget and off-budget funds. Tax deductions are recorded in corresponding accounting accounts.
These elements are mandatory for any enterprise conducting accounting. They provide comprehensive and reliable information about the enterprise's financial and economic activities, necessary for management decisions.
Accounting Programs and Tools
Various programs and tools are used to automate accounting, which can be both paid and free, with different functionalities and computer resource requirements. Here are some current and popular options:
QuickBooks: Widely used by small businesses, QuickBooks offers a range of features including expense tracking, invoicing, payroll, and financial reporting. It is user-friendly and has both online and desktop versions.
Xero: This cloud-based accounting software is known for its simple interface and powerful features. It offers real-time collaboration with accountants, bank reconciliation, invoicing, and expense tracking.
Wave: A free accounting software designed for small businesses. It includes features such as invoicing, receipt scanning, and financial reporting. Paid features include payroll and payment processing.
Zoho Books: Part of the Zoho suite, this software offers comprehensive accounting features including expense tracking, invoicing, inventory management, and tax compliance. It integrates well with other Zoho products and third-party applications.
FreshBooks: Known for its user-friendly interface, FreshBooks focuses on invoicing, time tracking, expense management, and financial reporting. It is especially popular among freelancers and small service-based businesses.
Sage Business Cloud Accounting: This cloud-based solution offers features like invoicing, cash flow management, and financial reporting. Sage is known for its scalability and support, making it suitable for growing businesses.
Odoo: An open-source ERP system that includes accounting features along with CRM, project management, and inventory management. It is highly customizable and suitable for businesses of various sizes.
Kashoo: A straightforward and simple accounting software that offers features like invoicing, expense tracking, and financial reporting. It is ideal for small businesses and freelancers looking for a no-frills solution.
When choosing an accounting program, consider the type of enterprise, the business sector, budget, functionalities, support, and training opportunities. Ensure that the software you select meets your specific business needs and provides the necessary features to streamline your accounting processes.
Compliance with Tax Obligations in Georgia
Georgia offers favorable conditions for small business development, including attractive tax rates and simplified reporting procedures. Special tax regimes are provided for small enterprises with an annual turnover not exceeding 500,000 GEL.
Types of Taxes:
- Income Tax: For businesses with an annual turnover up to 100,000 GEL, the rate is 1% without considering expenses. For enterprises with a turnover up to 500,000 GEL, the rate remains the same, but VAT of 18% is added.
- VAT: If the turnover exceeds 100,000 GEL per year, the enterprise must register as a VAT payer.
- Pension Contributions: All small enterprises must pay contributions of 4% of the salary.
All small enterprises must submit tax declarations monthly, which can be done online via the official website of the Georgian tax service. Maintaining accounting is mandatory for all enterprises, including small businesses, and must be conducted in accordance with Georgian legislation and international standards.
It is crucial to remember that compliance with tax obligations is a key factor for successful business operations in Georgia. Violations of tax laws can lead to fines, penalties, and other sanctions.
Tips and Best Practices
When managing accounting, adhere to the following principles:
- Compliance with Legislation: Keep track of legislative changes and make timely adjustments.
- Use Specialized Software: Modern accounting software simplifies the accounting process and helps avoid many errors.
- Regular Staff Training: Accounting staff should continuously improve their qualifications and stay updated on legislative changes.
- Systematize Document Flow: Develop a clear system for storing and processing primary documents to ensure their preservation and accessibility when needed.
How to Avoid Common Mistakes?
Typical mistakes in accounting in Georgia include:
Incorrect Primary Document Preparation: Adhere to requirements for primary document preparation to ensure their legal validity.
Delayed Reporting: Failure to submit reports on time can result in fines and other sanctions.
Incorrect Tax Calculation: Incorrect tax calculation can lead to underpayment or overpayment, causing additional expenses.
Importance of Audit and External Consultations
Conducting audits and seeking external consultations helps prevent errors and violations, ensuring the enterprise's activities comply with legal requirements. An auditor can identify weaknesses in the accounting system and provide recommendations for improvement. External consultants can offer expert knowledge and experience in accounting and taxation.
Accounting is a complex task best handled by professionals. To avoid errors, penalties, and fines, contact our company. Jara Accounting will provide accounting and legal support for your business in Georgia, considering the unique aspects of each company and developing optimal accounting solutions.