Profit sounds great until it turns into a headache – How to avoid financial stress at the end of the year?

The end of the year in a limited liability company often causes contradictory feelings, or as Gordana Aritonović, tax advisor and CEO of PSK, would say – profit sounds great until it turns into a headache! Does your company know how to avoid financial stress and maximize profit at the same time? This question is becoming increasingly relevant as the end of the fiscal year approaches, a moment when companies balance between optimizing costs and laying the foundation for a more successful business future. Gordana Aritonović explains to eKapija that profit planning for small and medium-sized enterprises is not just an administrative obligation but a strategic need.

- Profit planning for small and medium-sized enterprises requires a proactive approach in order to avoid stress at the end of the fiscal year. It is important to start by defining where your company is. Are you in the category of small or medium-sized enterprises according to the Accounting Law? This is not just a legal detail, but a key starting point for precise planning - emphasizes Gordana Aritonović.

According to the Accounting Law, small businesses employ up to 50 workers, generate operating income of EUR 700,000 to 8 million, and have assets worth EUR 350,000 to 4 million. Medium-sized businesses include companies with 50 to 250 employees, income of EUR 8 to 40 million, and assets worth between EUR 4 and 20 million.

Aritonović emphasizes the importance of several key steps:

- With a proactive approach, companies not only reduce financial pressure at the end of the year, but also create the basis for sustainable development and stable business - adds Aritonović.

Planning should begin at least three months before the end of the fiscal year for the following year.

- It is crucial to understand that profit planning is not a one-time process. The initial assessment should be based on a detailed analysis of the previous and current fiscal year, along with identifying trends that could affect the business - advises the tax advisor.

After the initial planning, quarterly monitoring and revision of the plan is recommended in order to adapt to real market circumstances and internal changes in the company. In practice, this means:

- Planning ahead gives companies the opportunity to choose between paying bonuses or dividends, depending on the current situation and the company's long-term goals, thus avoiding stress at the end of the year and contributing to business stability - emphasizes Aritonović.

When it comes to "quick solutions" such as flat-rate invoices, Aritonović warns of potential risks.

- Quick solutions such as flat-rate invoices often seem tempting at a time when companies want to "close" the year and optimize costs. However, such moves carry significant risks, both from the point of view of legality and long-term financial consequences - she emphasizes.

Instead, companies should focus on transparent planning and legal options for tax optimization.

- The law clearly defines which services and transactions are subject to detailed documentation and justification. Flat-rate invoices, if not based on the real scope of the work or delivery, can be recognized as an attempt to avoid taxes or manipulate the balance sheets. This can lead to additional tax audits, penalties, and even loss of trust from business partners. In the long run, reliance on such methods can undermine the stability of the company. Instead of short-term shortcuts, it is better to invest time in detailed planning and transparent business operations - which, although slower, brings safer and more sustainable growth - she advises.

Insufficient profit planning can have serious consequences on the liquidity and stability of a company, especially as the end of the fiscal year approaches.

- A key element that is often overlooked in this process is cash flow - the balance of money that a company actually has on its account, compared to the profit shown in the balance sheets - she says.

In practice, our interviewee explains, the profit often looks significantly higher than the money available on the account, which is a consequence of unpaid receivables.

- For example, companies can have extremely high amounts of invoices that have not been collected, but are recorded as income. This creates the appearance of financial stability that does not correspond to the actual balance on the account. If profit planning is not aligned with the collection dynamics, the company can end up in a situation where it shows high profits, but does not have enough funds for current operations or to settle tax liabilities - she explains.

The biggest challenge arises at the end of the year, when the corporate income tax must be paid in full when filing a tax return. If the company has not adequately planned and secured funds, as the tax advisor points out, it may face the risk of a liquidity crisis.

The solution, she adds, is regular monitoring of cash flow, knowledge of the collection dynamics and active management of receivables.

- By planning ahead and aligning profits with actual cash inflows, companies can avoid unpleasant surprises and ensure stable operations throughout the year - advises Aritonović.

One of the most effective ways to reduce the tax burden, according to Gordana Aritonović, is to pay bonuses to employees, including the founders who are active in the company. Instead of paying a 15% profit tax and then a 15% dividend tax, the bonus is taxed at a rate of 10%, with minimal contributions, which represents a favorable tax treatment for companies.

- The key advantage of this approach is that contributions are calculated only on the amount up to the maximum contribution base, which for 2024 is 573,470 dinars. On the amount above that, only a 10% tax is paid. For example, if a company pays a bonus of 10 million dinars, contributions are calculated only on 573,470 dinars, while only 10% of the tax is paid on the remaining amount - explains Aritonović.

In order for this practice to be completely legal, the bonus payment must be covered by adequate documentation, our interviewee points out. This documentation includes: Labor Regulations, Labor Contracts and Contract Annexes, and Decisions on Bonus Payment.

- This not only allows for a legal reduction in the tax burden, but also additionally motivates employees, which can contribute to the growth and stability of the company in the long run - she adds.

When planning the payment of profits, it is crucial to find the right balance between reinvesting in the company and the personal benefit of the founder. Bonuses, although an attractive option for founders, can increase tax liabilities if they are too high, so it is important to carefully plan how much to leave in the company and how much to pay to yourself.

- The bonus is treated as part of the salary, which means that it is subject to annual personal income tax. When planning the payment of bonuses, it is important to take into account the total tax cost and analyze how profitable such a payment is for each individual founder. It is important to note that the larger the bonus, the higher the annual income tax. The amount of the bonus should be in line with the company's planned expenses and must not jeopardize liquidity and regular operations. The optimal amount of the bonus is the one that the founder would pay themselves through a dividend, because in this way a similar effect is achieved with the most favorable tax conditions possible. Smart profit planning means long-term strengthening of the company, while at the same time taking into account the interests of the founder - says Aritonović.

For micro enterprises and small companies, the bonus system has many advantages, including lower tax burdens and greater opportunities for motivating employees. In companies with one employee - the founder, the payment of bonuses is almost an ideal solution. However, for larger companies, the bonus system requires precise administration and clearly defined criteria, which can be an administrative challenge.

- In companies with a large number of employees, it is necessary to define in the work regulations to whom bonuses are awarded, with clear criteria. Such a system can be an excellent tool for motivation, but it should be transparent and properly documented in order to avoid potential disagreements - emphasizes Aritonović.

The payment of bonuses also has its tax aspect, adds our interviewee.

- According to the Labor Law, a bonus is recognition of the employee's contribution to the employer's business success. In order for the payment of bonuses to be legal and tax-acceptable, it is necessary to envisage the payment of bonuses in the work regulations, and then make a decision on bonuses, which specifies the criteria and amount of the bonus for each position. Such a system enables flexible cost management, motivates employees and contributes to the long-term stability of the company - concludes the interviewee of eKapija.