Accounts
As a business owner, you will need a set of accounts prepared regularly to show how you are performing financially
You may have heard the terms statutory accounts and management accounts and wondered what the difference is between these two sets of reports – after all, both are produced by accountants so it’s understandable that the terminology can sometimes be confusing.
Statutory accounts
are rather like an MOT on a car. They are a legal requirement for certain types of business, including limited companies.
It provides a breakdown of a company’s financial transactions over the past 12 months.
Typically this includes a profit and loss report, showing turnover and profits and a balance sheet which details the total value of all assets you hold, any capital gains made and any business debt such as loans.
A statutory report can be used internally to help with business decision making but its main purpose, as its name suggests, is to provide statutory information to HM Revenue & Customs and your shareholders.
“Hayward Wright go above and beyond to help with anything to do with HMRC, financial advice, providing details for our mortgage advisers, general business advice and much more is always a friendly phone call or email away.”
– Greg Smith, F8 Creates
Management accounts
on the other hand are far more flexible and are created, with you the business owner in mind to help guide internal decision-making.
Because they do not need to be completed at a set time, they can be very useful if you are considering a significant change in direction.
If you are planning to diversify, expand your business into new areas or perhaps make cutbacks, a set of management accounts will act as a roadmap.
If you are seeking additional investment or a business loan, banks and investors will often look at your application more favourably if you have a set of recent management accounts which sets out your company’s current financial health.
Most business owners will use both their annual statutory accounts and interim management accounts – which can be prepared as often as the business requires, to guide their decision making.
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