Taxes & business banking for the self-employed


2021 Essentials for the Self Employed and Freelancers: Understanding a BWA

Kate Bailey

Freelance Editor

Jun 9, 2021

BWA means business evaluation. It shows whether a company is making profits or losses. Via BWA, entrepreneurs receive an overview of sales, costs and key financial figures for the company. This makes the BWA one of the most important controlling tools for entrepreneurs. The BWA is based on the accounting data for the past month or quarter. You can either do the creation of the BWA yourself with suitable accounting software or you can commission a tax advisor to do so. We’re talking about it on the blog as you may have noticed it has become a requirement for some forms of government financial support during the Corona crisis.

Definition of BWA - what is it?

The abbreviation BWA stands for business evaluation. An entrepreneur uses this to represent the cost and profit situation of their company. At first glance, it seems very similar to a balance sheet, at least as far as the definition of a BWA is concerned. However, in contrast to the balance sheet, this is not drawn up annually, but monthly. With this, you always have an up-to-date overview of the economic situation of your company.

From a legal point of view, however, there is no obligation that provides for the creation of a business analysis, which is why many companies do not read the BWA. Nevertheless, you should create this every month to keep an eye on the development of your freelance or self-employed operation.

Who should prepare a business analysis?

A business analysis is mainly prepared and used in small and medium-sized companies. With these companies, it is particularly important, in comparison to large companies , to constantly monitor their economic success and so to be able to continue growing. In order for a company to be able to prepare a BWA, the accounting obligation of the company concerned is required.

Finally, the business evaluation is based on the data from financial accounting. The BWA is usually created by a tax advisor or auditor, usually with the help of DATEV. This is especially important in the 2020-2022 tax season, with changes coming in and of course, the Corona crisis pure ruining lives.

What is the purpose of a BWA?

A BWA is an important tool for any business to control. It is therefore advisable to carry out this evaluation on a regular basis. So you can check the development of your company at any time. Above all, with the business analysis, you have the advantage that you always have all the current data about your company in compact form. Of course, this brings additional work, but it also has many advantages. For example, you can use the business analysis:

  • Check and plan your income tax prepayments
  • Check whether an investment deduction is an option for you
  • Present the current figures for a discussion with your bank, e.g. for a loan
  • A BWA is very important, especially for banks. In addition to documents such as your balance sheets, they also want your business evaluation to be available during loan negotiations.

With the data from financial accounting, an ideal business analysis can be created. As soon as your company meets the GoB guidelines (principles of proper accounting), it can create a BWA from the existing financial accounting data. Either a tax advisor can be commissioned for this, or you can create your BWA yourself. If you have accounting software, you can also create your BWA yourself with a few clicks.

But you can also use an Excel template to create your own BWA and save the costs of an external tax advisor. You can find numerous templates for this on the Internet that you can download for free. With the help of these forms, you can create an excellent overview of your business analysis.

What belongs in the BWA?

What exactly belongs in the business evaluation depends to a certain extent on which BWA is created. However, there are certain components that belong in each of the evaluations presented above. These include:

  • The short-term income statement
  • liquidity
  • Movement balance

If you want to compare certain components and numbers with your BWA, it should also include the following points in your evaluation:

  • Previous year invoice
  • Industry comparison
  • Target / actual comparison
  • Annual overview

Read the BWA correctly

Unfortunately, the best BWA won't help you if you can't read it properly. If that is the case, you will only see a sheet of paper with a lot of numbers in front of you, but from which you cannot read any developments. It is therefore advisable to draw up a so-called exercise BWA every month. This is a short-term income statement that is very often used in practice. A movement balance shows how the movements of the year affect the account groups shown on balance.

This exercise BWA is usually presented in two categories: the use of funds and the source of funds. When the funds are used, the increase or decrease in capital shares is shown. The source of funds shows the decrease in assets or the increase in liabilities.

You can easily read this BWA and, accordingly, read and derive the most important factors from it:

  1. Where do you stand compared to last month?
  2. How does it compare to the same month last year?
  3. Where did you fall short of or exceeded costs and revenues?
  4. What is the percentage of your business development?
  5. What is the relationship between the operating result and personnel costs?

These are just a few examples of the data you can also pull from this evaluation in order to compare and, if necessary, react accordingly.

The ten most important key figures in a BWA 

  1. The overall performance: The overall performance includes changes in inventories and your sales

  2. The gross profit: You get the gross profit if you subtract the purchase of materials and possible external services from the total output.

  3. The other operating income: This point is important if you also use items or services privately from the business assets. This can be your company car, for example, or just your company cell phone or laptop. The portion that arises for private use is included in other operating income.

  4. The operating gross profit: For you, this amount is made up of the gross profit and all other operating income. You have to compare this so-called positive amount with the cost calculation.

  5. The types of costs: Under the types of costs you will find all costs without interest and taxes. These can be, for example, personnel costs, rental costs, advertising costs and also depreciation. These types of costs are also important for you if you want to calculate your break-even point.

  6. The operating result: You get the operating result if you subtract the gross operating profit from the total costs.

  7. The neutral effort: This includes advance tax payments, but also interest. This is called neutral because it has nothing directly to do with your business just your job as a temporary bank for the tax office.

  8. The neutral income: Just as is the case with neutral expenditure, there is also income that is not directly related to your business. These can be tax refunds or interest income, to name just two examples.

  9. The pre-tax result: You get this result if you subtract the neutral expenses and neutral income from the operating result.

  10. The provisional result: The provisional result is calculated if you deduct taxes from the pre-tax result.

Use the regular creation and reading of the Standard BWA to get an overview of the current earnings situation of your company. With the evaluation, you are able to control your company and plan further processes. Law does not prescribe the creation of a BWA, but it is part of the standard program for banks or when looking for an investor and must be submitted.

Basically, it is the German standard that yes could correlate with a budget or other similar documents but ultimately is something you should learn how to do or at least read for success as a freelancer or self-employed person in Germany.