As a company director, it’s vital you know the difference between year-end and management accounts. While your year-end accounts are about ‘compliance’, our team use your management accounts to show you where to focus your time and energy.
What are Year-End Accounts?
You must prepare year-end, or ‘statutory’ accounts. These accounts are for external use and are required by law for limited companies.
Your accountant will prepare year-end accounts to meet specific requirements. They will include:
- an income statement
- a balance sheet
- a directors report
- supporting notes
In addition, depending on the size of your business, they may also include:
- an accountant’s or auditor’s report and
- a cash flow statement.
Your accountant will file a summarised version of the year-end accounts with Companies House. They’ll provide a detailed report for shareholders and HMRC.
Year-end accounts show you what happened in the past
Private companies don’t need to file their accounts until 9 months after their ‘accounting reference date’ (year-end). That means they are essentially a historical record.
Importantly, you cannot change what happened in previous financial years.
What are Management Accounts?
You can (and should!) use management accounts to help make your financial decisions. They’ll help you control your business.
Furthermore, they should be tailored to the needs of your business. Which areas of the business are most important? In addition, which are the key numbers?
Typically management accounts include the following.
- a profit & loss report
- a balance sheet
- summary of amounts owed to you from customers
- summary of amounts you owe to your suppliers
- analysis of key performance indicators (KPIs)
- a breakdown of the results by key business area
- a written explanation of what the numbers mean
Review your management information as often as needed. Typically this will be every month or every quarter.
Management accounts show you what’s happening now
The key difference from year-end accounts is that your current year is not set in stone! Consequently, you can change the results. Here’s how.
- Firstly, know where you are / aren’t making money. Analyse your business by product, service, stream, location etc.
Action: Get the right balance between high and low-margin activities. Change prices or the way you price. Sell more of some products / services, less of others.
- Secondly, see where cash is tied up in your business.
Action: Automate and improve credit control. Make it easier for customers to pay. Update payment terms.
- Thirdly, identify funds available for shareholder / director remuneration.
Action: Pay salary, bonuses or dividends as appropriate.
If you’re unsure what action to take, we can advise.
Who can prepare management accounts?
You’ll get a ‘rough-and-ready’ set of reports straight from Xero. However, to make sure the figures are robust and accurate, you can engage an accountant.
Larger businesses often employ an in-house accountant to do this. However cloud accounting makes it easy to outsource. Business of any size can obtain management reports. We include them in accounts packages for an affordable monthly fee.
How can Wessex help?
Our team draw on their business experience when preparing your management accounts. They’ll help make sure your business is performing as expected, and tell you their concerns, as well as highlighting opportunities for you to improve your results.
We support businesses across Devon, Somerset and surrounding areas. We provide an efficient, personal accounts service by working closely with our clients.
Contact the team at Wessex to discuss your accounting needs.