FAQ

Accounting is one of the most important management systems in a company. It is not just about entering invoices and submitting declarations to the SRS. Quality accounting helps the company manager understand what is happening with the company's money, profits, liabilities and taxes.Therefore, choosing an outsourced accounting service is a decision that should be made as carefully as choosing any other important collaboration partner.1. Check if the service provider is licensedIn Latvia, accounting outsourcing services may be provided by licensed accounting outsourcing service providers. The SRS maintains a public register of licensed accounting outsourcing service providers, where it is possible to check the license status and the responsible accountant.2. Find out exactly what is included in the serviceThe cheapest offer is not always the best.It is important to clarify:how many documents per month are included in the price;whether the price includes payroll;whether VAT and other tax returns are prepared;whether an annual report is prepared;Does the company receive management financial reports?Does the accountant advise on tax matters?how communication with the SRS is organized;how quickly you can get answers to your questions.3. Evaluate the experienceA good outsourced accountant not only knows the accounting software, but also needs to be able to understand the company's business.It is particularly important to find out whether the service provider has experience in thesethis in your industry.4. Pay attention to safetyA company's accounting processes highly sensitive information – bank details, employee salaries, customer information, contracts, and tax data.Therefore, it is important to understand how document storage, access rights, and data protection are ensured.5. Choose a partner, not just an accountantA good outsourced accountant informs the company manager about risks in a timely manner, rather than just identifying them afterwards.A good question for a potential accountant:“What will you do to ensure that I, as a company manager, know in a timely manner about financial and tax risks important to my company?”The answer to this question often shows the professional level of the service provider.

Tax optimization does not mean tax avoidance. It is based on the correct application of regulatory enactments and corporate tax planning .A significant feature of the Latvian CIT system is that the application of the tax is largely related to the distribution of profits or certain expenses unrelated to economic activity, rather than simply to the generation of annual profits.The most significant sources of tax risk1. Insufficiently documented expensesEvery company expense must be economically justified and properly documented.2. Mixing personal and business expensesCompany funds may not be used for the private needs of the owner or manager without assessing the tax consequences.3. Related party transactionsTransactions between related parties must be economically justified and in line with market conditions. The SRS also specifically points out the risk if the value of transactions between related parties does not correspond to the market price.4. Loans to related partiesLoans issued by a company to related parties may have CIT consequences, therefore, before issuing a loan, its economic justification and tax application must be evaluated.5. Incorrectly applied VATParticular care should be taken when assessing transactions with foreign customers and suppliers, the place of provision of services, the application of VAT and supporting documents.How to act practically?It would be useful for a company to conduct a tax risk assessment at least once a year:check the largest types of expenses;review related party transactions;check accounts receivable;evaluate loans;check VAT transactions;review the taxation of wages and benefits;to check entertainment and personnel expenses.Preventing tax risks is almost always cheaper than correcting errors after a SRS audit.

Dividends are a portion of a company's profits that are distributed to its members or shareholders.Simply put, a company makes money, calculates and approves distributable profits, and owners can receive a portion of these profits in dividends.However, it is important to understand: having money in a company's bank account does not automatically mean that this money can be paid out as dividends.The company's financial position, previous periods' profits, losses, liabilities, and the requirements set out in the Commercial Law must be assessed.How are dividends taxed?In 2026, the general CIT rate for dividends is 20% of distributed profits. In certain cases, a company whose members during the tax period are only natural persons has the option to choose an alternative 15% CIT rate for dividends, while applying 6% PIT to dividends for natural persons.Important: the choice of the alternative 15% CIT regime must be assessed in the specific situation of the company, as it has its own application conditions.Dividends are not the same as salaryA salary is payment for work.Dividends are the owner's income from holding shares or stocks.Therefore, it is important for a business manager not to confuse wages with profit sharing.Three questions should be asked before paying dividends:1. Does the company have sufficient distributable profits?2. Are the dividend calculation and shareholders' decision drawn up in accordance with the requirements?3. What taxes are payable in this particular situation?Properly calculated dividends are a legitimate way for a business owner to receive income from their investment in the company.

A company manager does not necessarily have to be an accountant.But he must be able to read the company's financial information .Accounting shows what has happened. Financial analysis helps you understand why it happened and what might happen next .Five key metrics a manager should know1. TurnoverHow much has the company sold in a given period?2. ProfitHow much does the company have left after covering costs?3. Cash balanceHow much money does the company actually have available?4. Accounts receivableHow much have customers not yet paid the company?5. CommitmentsHow much does the company owe to suppliers, banks, the state and other parties?It is very important to understand that profit and money are not the same thing .A company can be profitable but at the same time experience a cash shortage if customers are late on payments or the company is rapidly investing in development.A financial statement must give a true and fair view of a company's assets, liabilities, financial position and profit or loss.The driver should receive at least:profit or loss statement;balance sheet;cash flow statement or cash flow analysis;accounts receivable statement;accounts payable statement;tax liability statement;comparison of budget and actual result.A good accountant provides the manager not only with numbers, but also with an explanation of those numbers.

Accounting problems are not always visible at first glance.However, there are several signs that a business manager should pay attention to.1. The manager doesn't know how much the company actually earnedIf the answer to the question “What is our profit this year?” is just a guess, the financial information is not sufficiently transparent.2. It is unclear how much customers owe the companyAccounts receivable are one of the most significant cash flow problems.If a company does not know which customers are late with payments and for how long, there is a risk that profits remain only “on paper”.3. Accounting is done with a long delayIf a manager learns about the company's financial results several months later, the information is no longer useful enough for decision-making.Accounting information must be true, comparable, timely, relevant, understandable and complete.4. It is unclear why profits are changingTurnover has increased, but profits are decreasing?Are costs growing faster than revenue?Are accounts receivable getting bigger and bigger?If accounting cannot help explain these changes, the company's management is missing essential information.5. The manager is afraid to ask the accountant questionsThis may seem surprising, but this is also an important sign.An accountant must be able to explain a company's financial situation in simple language.Well-organized accounting is not just “so that everything is in order with the SRS.” It is a system that helps a company make the right decisions.

Financial analysis is not only necessary for large companies.It can also be very valuable for a small and medium-sized business.It is especially recommended to perform a financial analysis if:The company's profits are decreasing.Turnover may increase, but the company's profitability may decrease. Financial analysis helps to clarify the reasons.Debts are increasing.If accounts receivable grow faster than turnover, the company may experience liquidity problems.The company is planning investments.Before purchasing real estate, equipment, vehicles, or making large investments, the company's financial capacity should be assessed.The company wants to obtain bank financing.The bank will be interested not only in the company's profit, but also in cash flow, liabilities, equity, and the company's ability to meet its obligations.The company's owners or management change.Financial analysis allows you to more objectively assess the current state of the company.The company wants to grow.Rapid growth in itself does not necessarily mean financial stability. A company must be able to finance its growth.Financial analysis helps answer important questions:Is the company profitable?Does the company have enough money?Is the debt level safe?Which services or products are the most profitable?Where do the biggest costs arise?Is the company's financial situation improving or worsening?

To perform quality financial analysis, just one annual report is not enough.The more quality information is available, the more accurately it is possible to assess the company's situation.Basic information for financial analysis:1. Financial statementsIt is advisable to analyze at least 2-3 years of financial data to see trends.2. Balance sheetIt allows you to analyze a company's assets, equity, and liabilities.3. Profit or loss accountIt shows the revenue, costs and result of the company.4. Cash flow dataThey help to understand how money actually moves within a company.5. Debtors and creditors dataIt is important to know not only the total amount of debt, but also the age of the debt.6. Information about loans and interestThis is necessary to assess the company's financial burden.7. Budget or business planIf there are planned indicators, it is possible to compare the planned with the actual result.What can be obtained as a result of financial analysis?For example:profitability indicators;liquidity indicators;the ratio of liabilities to equity;debtor turnover indicators;cost structure analysis;turnover and profit dynamics;cash flow analysis.The purpose of a financial statement is to provide a true and clear picture of a company's financial position, but financial analysis helps to use this information for management decision-making.The most important thing is that financial analysis does not have to be complicated. It must be understandable and practically applicable to the company manager.

Crisis management is a systematic approach to a situation where a company faces serious threats to its operations, financial stability, or reputation.A crisis does not always begin with the insolvency of a company.Sometimes it starts much earlier.Typical signs of a company crisis:there is a long-term lack of working capital;customers are late with payments;the company is unable to pay its suppliers on time;sales are declining rapidly;costs are growing faster than revenues;the company has too much debt;tax debts arise;an important customer is lost;the company has been operating at a loss for a long time.The main task of crisis managementThe goal of crisis management is not just to “survive.”Its goal is to identify the problem in a timely manner, stabilize the company's cash flow, reduce losses, and develop a realistic action plan .What to do if a company starts a financial crisis?1. Analyze cash flow immediately.You need to know how much cash the company has today and what the most significant cash inflows and outflows will be in the coming weeks and months.2. Prioritize costs.Not all costs are equally important.3. Review accounts receivable.Sometimes the company's money has already been earned, but is with customers.4. Review contracts and obligations.Opportunities to agree on payment schedules, deadlines, or other solutions should be evaluated.5. Develop a crisis financial plan.The plan should be based not on optimistic expectations, but on real numbers.Crisis management is not just for big companiesEven a small business may need crisis management.The smaller the company, the more significant the impact of one customer, one employee, or one large contract on the overall financial situation can be.The most important principle of crisis management is to solve the problem while it is still solvable.The earlier a company's management notices a negative trend, the more options there are to choose a solution.