Check the financial position of your business relation

Some businesses must submit their financial statements to KVK every year. This is called filing. Financial statements contain information about a company's financial affairs. For small companies, this usually consists only of a balance sheet. Larger companies have to provide more information. 

What use is the information in a financial statement?

Looking at this information helps you judge whether companies are good business relations for you. Are their finances in order? Then it is more likely that your invoice will be paid on time, or your order delivered. You can request a company's financial statements online. Note: eenmanszaken (sole traders), CVs, VOFs, and maatschappen (professional partnerships) do not have to submit financial information.

What is included in a financial statement?

The information you will find in the financial statement depends on the size of the business.

Small business: limited balance sheet

Small companies submit a limited balance sheet and an explanation of how it was prepared to KVK annually.

Large companies: detailed information

Large companies submit detailed financial information to the KVK every year. The larger the company, the more information there is in a financial statement. For example:

• annual report 
• management report
• profit and loss account 
• auditor's report

The company must also explain these financial statements so that you can understand them better.

Listed companies

Dutch companies that sell their shares through the stock exchange first publish their financial reports themselves. They file their financial report with the Financial Markets Authority (AFM). The AFM then shares the report with KVK. 

How do you analyse the financial statement?

The profit and loss account shows how much profit or loss a business has made in a year.

The balance sheet shows:

• Assets:  stock, invoices still to be paid by customers, cash, and money in bank accounts.
• Liabilities: loans and other debts.

Together with the balance sheet, the profit and loss account provides information on the business’s financial position. Compare figures across several years to see how the business has developed.

These are signs that the business may not be doing well:

• The business has been making a loss for several years.
• Turnover is barely growing or is falling.
• The business has high levels of debt.
• The business has little equity capital.

Read the annual report to see how the business explains this. Also look at the stock levels. If turnover is low and stock levels are high, this may mean that the business is struggling to sell its products.

Can your business relation pay?

Businesses often have an overdraft.This enables them to bridge the gap between the time of purchasing and production and the time when customers pay. As long as a business can pay off these short-term debts, it is not a problem and the business is considered ‘healthy’. 

With figure from the financial statement you can quickly check whether your business relation is financially healthy. 

1. Add up the ‘current assets’ and ‘cash and cash equivalents’.
2. Divide that number by the ‘current liabilities’. 

Does this result in a number higher than 1.2? This is a sign the company is healthy. If the result is below 1, it is not.

Calculation example

Suppose you see the following in a company's financial statement:

• Current assets: €90,000
• Cash and cash equivalents: €30,000
• Short-term borrowing: €80,000

Add the current assets and cash and cash equivalents together: €90,000 + €30,000 = €120,000.

Divide the result by the short-term debt: €120,000 ÷ €80,000 = 1.5.

The result is 1.5. This indicates that the business probably has enough money to pay off its current debts and is financially healthy.

What if a business does not file financial statements?

Filing financial information is mandatory for many companies. Yet there are companies that fail to do so on time, or at all. This may be due to illness, a business takeover, or delays with the accountant, for instance. Do you see this happening with your business relation several years in a row? This is an important sign that you should be careful doing business with them. For example, arrange a bank guarantee. This will give you greater security.