In recent years, we have witnessed the dynamic development of the small and medium-sized enterprise sector in Poland. According to data collected by the Central Statistical Office (GUS), in 2022, there were about 2.3 million non-financial enterprises in Poland, which is about 15% more than five years earlier and almost 36% more than a decade earlier. A notable 97.1% of this sector comprised micro-enterprises, i.e., entities employing up to 10 employees, with an annual turnover and/or balance sheet total not exceeding 2 million euros. The vast majority of this group consists of enterprises with Polish capital.
Simplified Accounting, Tax Books
Depending on the legal form of business activity and the size of the business itself, different forms of recording economic operations are available to entrepreneurs. The simplest forms of records are tax books, which primarily serve fiscal functions, and their main task is to provide information for the proper settlement of public law obligations. Tax books are suitable for small businesses with predictable and repetitive operations and in industries with relatively low risk.
Full Accounting
Another option is accounting books, i.e., the recording of economic operations based on the Accounting Act. Accounting books, in addition to providing information needed to fulfill tax obligations, offer a broader range of financial data that allows for a more precise assessment of the financial situation of the enterprise, its results, and cash flows.
According to Polish regulations, the obligation to apply the Accounting Act applies to all legal entities, while individuals conducting business activities can choose between tax records (tax books) and full accounting, provided they do not exceed the limit of 2 million EUR in annual revenues.
The Accounting Act also provides a range of simplifications for micro and small entities, including simplified reporting (without the obligation to prepare additional information, cash flow statements, statements of changes in equity) or simplified recording of economic operations, e.g., in terms of leasing, deferred tax, or accruals.
For young, developing companies, aspects related to economic records and accounting rarely make it to the list of priorities. More comprehensive records can be associated with higher accounting service costs, so many business owners do not opt for such an expense. The measures of success and development of the organization remain available data: revenues and their growth, achieved results, or the balance of cash funds accumulated in bank accounts.
Often, companies obliged to apply the Accounting Act decide to take advantage of the simplifications provided in it. Frequently, this is not a conscious decision by the owner but a practice adopted by the entity providing accounting services. This approach may be sufficient, but only until the company reaches the threshold of the next development stage, where it will need, e.g., additional financing, an investor, or a strategic partner, or will require extensive financial data to make strategic decisions.
A potential investor, partner, or bank usually expects the business owner to provide financial data up to the reporting standards commonly used among large entities in the market, e.g., full accounting according to the Accounting Act or even International Financial Reporting Standards. At that point, simplified books become unreadable or insufficient for assessing the financial situation of the enterprise, preparing development forecasts, valuation, or comparing with industry trends. Corrections are required, e.g., in terms of the appropriate presentation of financial leases, disclosure and valuation of reserves, or accruals or appropriate recognition and accounting of revenues in the case of long-term services. Often, corrections must also be introduced to comparative periods, which boils down to analyzing data from at least two years.
All this involves very high costs and naturally delays the entire investment process.
Management Accounting
It is worth noting that in addition to providing financial data in a specific format, investors, or business partners also expect comprehensive management information, including financial data at a low level of aggregation.
An analysis of profitability by product groups, customers, or projects, as well as information about the cost structure, revenues, and customer portfolio, may be necessary. These data allow us to assess where the company makes money, where it loses, and where the so-called "bottlenecks" are located. This enables corrective or remedial actions and setting strategic development directions. Such data is available thanks to the implementation of management accounting.
Summary
To emphasize the significant role of management accounting, it is worth quoting Bill Gates:
„Every company's business begins and ends with a thorough analysis of the numbers. Regardless of what the company does, if it cannot draw conclusions from the facts about its own activities and makes decisions based on superficial information or intuition, it will ultimately pay a high price..”
The benefits of implementing full accounting and management accounting can add value not only for third parties interested in the company but also directly for the owner. Regardless of the development scenarios considered, it is worth knowing the strengths and weaknesses of your organization to effectively steer it in an uncertain and rapidly changing economic environment and make appropriate decisions in time.
Additionally, a knowledgeable and well-informed owner will always have a better negotiating position in any interactions with business partners.
In today's world, "time" is one of the most valuable elements of building a competitive advantage. A well-prepared financial and management accounting system, through the use of IT tools, often enables obtaining the necessary data in real-time, on an ongoing basis.
Therefore, every organization, even a small one but thinking ahead, should pay attention to the form in which its accounting books are kept and consider whether it is worth making a change and moving to a higher level, heading towards full accounting under the Accounting Act, while simultaneously starting the implementation of management accounting and controlling.
