As a business owner, you know you need to produce accounts – that’s a given. But do you know the difference between statutory accounts and management accounts? Your statutory and management accounts have two very separate purposes, and producing both kinds is good practice for any business that wants a handle on its numbers.
Let’s take a look at the key differences and why you need these specific kinds of accounting.
1. What are statutory accounts?
Statutory accounts are a legal requirement for any limited company or partnership. They’re the mandatory annual accounts you MUST produce, submit and file as a company. As such, statutory accounts are a regulatory requirement. You and your fellow company directors have a responsibility to ensure that these accounts are filed on time and in full.
Your statutory accounts will usually include a:
- Directors' report – giving an overview of business strategy and performance, key achievements and the company’s overall financial position. It will also cover shareholder information and dividends alongside broader information about the company.
- Profit and loss statement (P&L) – to outline the income coming into the business, and the expenditure going out over the course of the annual period. This is a key indicator of the profitability of the business during the preceding year.
- Balance sheet – to give a snapshot in time of the assets, equity and liabilities in the business. This is an indication of the financial health of the company on the date that the accounts are produced, a useful report for lenders and investors to review.
- Cashflow statement – so you can see your cash inflows and outflows over the course of the period. In an ideal scenario, you want your inflows to outweigh your outflows. This is known as being in a positive cashflow position.
- Notes to the Financial Statements – which contain supplementary details on your accounting policies, significant estimates, disclosures, and other relevant information for a comprehensive understanding of the financial statements.
2. What are management accounts?
Unlike statutory accounts, management accounts are not a mandatory, legal requirement. But producing management accounts is still good practice for any growing business.
Management accounts are produced to keep you and your top team on top of the business. They will generally be a summary of all the most important financial information and will be run every month or every quarter, depending on your business. This mix of numbers, data and metrics is then used to inform your business thinking and your decision-making process.
A regular management information pack will include:
- Sales performance and analysis
- Financial statements (profit and loss, balance sheet, cashflow statements etc)
- Key performance indicators (KPIs) tracking
- Budget versus actual comparisons
- Inventory and stock levels
- Customer and supplier analysis
- Cashflow forecasts for the upcoming period
- Operational metrics re your production and delivery
- Project updates re your main jobs
- Management commentary and insights.
Talk to us about handling all your accounting needs
Having your statutory and management accounts at your fingertips gives you the best possible overview of your company’s past, present and future performance. Filing statutory accounts keeps you compliant with the law, while having deep-dive management accounts gives you the data and evidence for making properly informed business decisions.
We’ll help you produce your statutory accounts and tick all the compliance boxes. And we’ll also generate tailored management accounts to keep you on the ball with your numbers.
Get in touch to talk about your accounts.