ACCOUNTING

Accounting is a systematic process of recording, classifying, and analysing a company’s financial transactions. It is essential for every business because it provides an accurate overview of the company’s financial position and ensures legal compliance and transparency in all matters related to taxation and reporting.

The size of the company is not important in this context. Is accounting important for small businesses? Absolutely. It supports day-to-day decision-making and helps maintain a proper relationship with the tax authorities. Professional accounting services help prevent tax-related issues and penalties, allowing businesses to focus on their core activities.

Small business accounting differs from large company accounting primarily in terms of scale. The accounting process is generally simpler, as smaller companies are not required to prepare complex additional reports such as cash flow statements or statements of changes in equity. As a result, reporting is faster, more straightforward, and more cost-effective.

Yes, it is possible. A small business owner can handle their own accounting if they have sufficient knowledge and skills. In companies with a limited number of transactions and simple operations, managing accounting independently can be feasible.  

However, all legal requirements must be followed, and reports must be accurate and submitted on time. To avoid errors and save time, it is often advisable to use professional accounting services, which ensure accurate reporting, compliance with deadlines, and expert guidance.

It is essential that all transactions are recorded correctly and that reports are submitted on time.

The mandatory components of small business accounting are defined by the Estonian Accounting Act. The following requirements apply:

• all transactions, income, and expenses must be recorded accurately;
• an annual report must be submitted to the Commercial Register;
• invoices and expense documents must be retained for at least seven years;
• all tax declarations must be submitted on time (e.g. VAT returns, payroll and social tax declarations).

These are essential elements of any reliable accounting service and apply to both micro and small businesses.

Typical accounting mistakes in small businesses include losing receipts and invoices, incorrect recording of income and expenses, miscalculating value-added tax (VAT), late submission of tax declarations, or confusion between accounting methods (e.g. cash-based vs accrual accounting).

Such errors can lead to penalties and issues with the Estonian Tax and Customs Board. For this reason, it is advisable to consider professional accounting services, which significantly reduce legal and financial risks.

The frequency of accounting depends on the size of the business, but even for small companies it should be done on a regular basis—most commonly on a monthly basis. This is especially important if the company is registered for VAT or pays salaries to employees. Regular accounting ensures that tax declarations (such as payroll and VAT returns) are submitted accurately and on time.

For very small businesses with a low number of transactions, quarterly accounting may also be sufficient. However, the annual report must always be submitted once per year. The most convenient solution is to outsource small business accounting, which helps ensure that all deadlines and declarations are handled correctly and on time.

Small business accounting does not require complex software. A simple and user-friendly program is usually sufficient, such as Merit Aktiva or another cloud-based accounting solution.

It is also important to consider the accountant’s preferences and experience. If the accountant is already familiar with a specific system, the work will be faster and more efficient. Learning new software can take time and may result in additional costs. When you outsource accounting services, professional software is used, enabling better data exchange and a higher level of automation.

A small business should consider hiring an accountant when its financial matters become more complex. This usually happens when:

• employees are hired and payroll accounting is required;
• the company becomes VAT registered;
• the number of transactions increases.

Using an accountant is a practical and cost-effective solution—it helps avoid errors, saves time, and provides additional support with tax advice and financial reporting. The cost of accounting services depends on the workload but is often more affordable than employing a full-time in-house accountant.

If you need professional assistance, the Purgato team offers transparent, accurate, and reliable accounting services tailored to small businesses.