Three groups will eventually read your financial statements as something other than a tax formality: a bank deciding on a loan, a buyer or investor running diligence, and a large counterparty or tender body checking whether you are safe to contract with. They ask for broadly the same things, and almost none of it can be produced retroactively.
That last point is the whole problem. A company that decides in March it wants to raise money in June cannot go back and create three years of clean books. Whatever exists on 1 January is what gets shown.
Your books were built for the wrong reader
Georgian accounting has a specific distortion baked into it, and it is not sloppiness. It is the corporate income tax system.
Under the Estonian model, a Georgian company pays 15% only when it distributes profit. Nothing taxes accrual profit. So there is no fiscal reason for anyone to compute a real profit figure, match revenue to the period it was earned in, or maintain a proper accruals and prepayments discipline. The books get built to satisfy monthly declarations on RS.ge, and by that standard they are often perfectly correct.
Then someone asks what the business earned last year, and there is no reliable answer. Not because the accountant failed, but because nobody ever asked for that number before.
This is why so many otherwise healthy Georgian companies fail diligence on presentation rather than on performance. The business is fine. The account of the business does not exist.
What reportal.ge already says about you
Before you send anyone anything, they can look you up.
Financial statements filed with SARAS are published under Article 9(3) of the Law on Accounting, Reporting and Auditing, within one month of submission. Statements of first, second and third category enterprises are openly accessible at reportal.ge. Fourth category statements are the exception: they are released on justified written request rather than published to everyone, which means they are still obtainable by a bank or a serious acquirer, just with an extra step.
Two consequences.
A missing year is visible and permanent. You cannot backdate a submission. A gap in the filing history is the first thing a careful reader notices, and the explanation is always some version of "we did not realise it applied to us," which is not a reassuring thing to say to someone about to lend you money.
Three versions of the same year is the single most damaging finding in Georgian diligence. The numbers you filed to SARAS, the numbers implied by your RS.ge declarations, and the numbers in the management pack you hand over should reconcile. When they do not, and the differences are unexplained, the reader stops evaluating your business and starts evaluating your honesty. Recovering from that mid-process is close to impossible.
Reconciling those three sources, and documenting why legitimate differences exist, is the highest-value week of work in this entire article.
The document request, in the order it arrives
A bank will typically ask for the following.
- Financial statements for the last two to three years, ideally as filed with SARAS
- Management accounts for the current year to date
- Bank statements across all accounts, usually 12 months
- The RS.ge tax account showing no outstanding liabilities or penalties
- A schedule of existing debt and its security
- Collateral documentation and valuation
- Contracts underpinning recurring revenue
A buyer or investor wants everything above, plus the following.
- Revenue broken down by customer, product and month, with a concentration analysis
- Accounts receivable and payable ageing
- A full list of related-party transactions with supporting documentation
- Employment contracts, the payroll register, and pension enrolment status for each employee
- All customer and supplier contracts of any size
- Corporate documents: share register, charter, minutes of shareholder decisions, evidence of paid-in capital
- Any tax audit correspondence, assessments or disputes
- Confirmation of intellectual property ownership, particularly where the developers were contractors
Notice how little of this is a financial statement. Most diligence is spent testing whether the statements are supported by documents, and most Georgian companies fail on the documents rather than on the numbers.
What actually gets flagged in Georgian diligence
Personal spending through the company account: the most common finding and the most expensive one, because it is two problems at once. It corrupts the expense base, so nobody can see the real cost structure. And under the corporate income tax rules, non-business expenditure is a deemed distribution, so the reviewer is now looking at an unquantified 15% liability that was never declared. A buyer prices that in, or walks.
Related-party transactions with no paper behind them: money moving between the owner's Georgian company, their foreign company and themselves personally, on the strength of nothing but intent. Every one of these needs a contract, a rationale and a market-rate justification, and creating them after the fact is visible.
Revenue with no contracts: common where clients are foreign and the relationship runs on email and invoices. A buyer will not pay for revenue that has no contractual basis, because it cannot be assumed to continue after the sale.
Reverse-charge VAT that was never accounted for: services bought from non-residents create a Georgian VAT obligation whether or not the company is VAT-registered. This surfaces in almost every diligence on a foreign-owned Georgian company, and the accumulated exposure across three years is rarely small.
People classified as contractors who are legally employees: the reviewer recalculates the whole payroll cost at the correct treatment: 20% income tax withheld, pension contributions, and penalties. In a services business this can change the margin materially.
Statements with no notes and no comparatives: the fourth-category reporting standard is minimal by design. A set of statements prepared to that standard can be fully compliant and still tell a reader almost nothing, because it lacks the accounting policies, breakdowns and prior-year comparison that make numbers interpretable.
An RS.ge account with unallocated payments or accrued penalties: frequently the result of a payment made under the wrong treasury code that has been sitting unmatched for a year. It looks like tax debt to anyone reading it from outside.
Bank-ready is a narrower test than investor-ready
Georgian bank lending is collateral-dominated. The World Bank's assessment of the sector describes plain-vanilla lending with high collateral requirements, land and real estate being the predominant security. That has a practical implication most business owners get wrong: your financial statements will not persuade a Georgian bank to lend against a business with no assets, however good the numbers look.
Where the statements do their work is narrower. The bank is testing whether declared revenue and the turnover through your accounts agree, whether the cash flow covers debt service with a margin, and whether the tax account is clean. A mismatch between what you declare to the Revenue Service and what moves through your bank account is the fastest route to a refusal, and it is a very common mismatch in businesses that take part of their revenue in cash.
So bank readiness is mostly three things: consistency between declarations and bank flows, no outstanding tax liabilities, and twelve months of statements that show a business rather than a personal current account.
When to step up from the fourth-category standard
Fourth-category enterprises may voluntarily apply IFRS for SMEs, and third and fourth category entities may use standards set for a higher category. If any of the following is on your two-year horizon, make the change before it is urgent:
- Raising equity from an institutional investor
- Selling the business or taking on a partner
- Borrowing at a size where the bank will actually read the statements rather than value the collateral
- Consolidating into a foreign parent's group reporting
- Bidding for contracts where financial capacity is scored
The reason to switch early is comparatives. A first year of IFRS for SMEs statements with no comparable prior year is worth much less than a second year, and diligence usually wants three. Switching twelve months before you need it produces roughly half the benefit of switching thirty-six months before.
The realistic timeline
Twenty-four months out: separate personal and business spending completely. Not gradually, and not "mostly." This is the single change that does the most for the eventual outcome, and it takes effect from the day you make it.
Eighteen months out: paper the related-party transactions. Get contracts in place for every material revenue stream. Decide on the reporting standard and, if you are stepping up, do it for the coming financial year.
Twelve months out: reconcile SARAS, RS.ge and your management accounts for the last three years and document every legitimate difference. Clean the RS.ge account. Start producing monthly management accounts that someone outside the business could read.
Six months out: assemble the data room. Run your own diligence against the list above and find your problems before the counterparty does, because a problem you disclose is a negotiation and a problem they discover is a discount.
Three months out: too late to fix anything structural. This is presentation only.
The honest summary
Nothing above requires a bigger accounting firm. It requires someone whose job is to produce numbers for a reader who is not the Revenue Service, and to do it before there is a transaction on the table.
The companies that come through diligence well are not the ones with the best performance. They are the ones that could answer the question three years before anyone asked it.
EFS Group prepares IFRS-aligned financial statements, management reporting and investor-ready financial packages for companies in Georgia, and provides fractional CFO support for businesses approaching a raise, a sale, or a lending decision.
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If a transaction is on your two-year horizon, the useful conversation is now rather than in the quarter before it starts.
This article is general information and not legal, tax or investment advice. Reporting standards, thresholds and procedures change. Verify the current position against the effective text of the Law of Georgia on Accounting, Reporting and Auditing on matsne.gov.ge, the Tax Code of Georgia, and the requirements of your specific counterparty.