What is the difference between Statutory Accounts and Management Accounts?

What are Statutory Accounts?

However small or large your business, you will be required to prepare some kind of statutory accounts each year – for Companies House if you are a limited company or to feed into your tax return if you are a sole trader. Statutory accounts can also be referred to as  Financial Accounts, Annual accounts or Year-end Accounts – they all mean the same thing. Too often these accounts are prepared 6-9 months after your year-end and are nothing more than a history lesson.

What are Management Accounts?

Management Accounts sound impressive, but they are just a window into how the business is doing: what profit you are really making; whether you can buy that new piece of machinery this month or in 3 months’ time; how your business compares month on month or year on year. Essentially, they help you to keep on track, have fewer worries and have more fun! Unlike statutory accounts, Management Accounts are not compulsory.

To grow your business, you are going to want to do some Management Accounts which track some basic numbers in real-time.

What do Management Accounts look like?

A good set of Management Accounts will probably include:

  • Cash Position

Cash is King – a detailed understanding of what is coming in and when payments will go out is vital for everyday budgeting, investment and funding decisions. While your cash flow statement will summarise the cash entering and leaving your company, your management accounts look at this data to identify patterns.: how long does it typically take to receive payments from clients? Which areas of the business are costing you the most? This will help you to plan around seasonal changes in income, and enable you to allocate money optimally across the business.

  • Profit and loss

Cash is one thing, but money in the bank doesn’t necessarily mean you are making a profit. Your management accounts can dig deeper: Are you regularly over or under-spending? Are specific projects profitable? Which departments or branches are performing the best?  Your reports can compare your actuals to your forecasts and identify if you are setting realistic profit targets or do you need to re-evaluate.

  • Balance sheet

Your balance sheet provides an overview of your net worth, showing your assets, liabilities and owner’s equity. Your management accounts will help you to look for deeper insights. How well do you manage debt? How quickly do you turn assets into revenue? How well do you generate returns on investment?

  • KPIs

Every business should have a set of Key Performance Indicators –measurable goals you want to achieve within a specific timeframe. These can be financial goals like growth in revenue, gross profit margin, operational cash flow, debtors and creditors. Or performance goals, such as the number of sales leads you want to achieve, the number of phone calls your Team is making in a week, or the income per member of staff.  Don’t go to town! Pick a few key things that you want insights on and monitor only those.

  • A narrative report

Often the person preparing your reports will include a narrative commentary highlighting key changes, anomalies or points of concern. It can be really useful to talk them over with a trusted advisor, such as your accountant, a business coach or your senior management team.

Remember, your goal is to produce only the most relevant and valuable information and keep it focused, specific and to the point.  And, like your Business Plan, Management Reports are only really useful if you review them regularly and keep them up to date.

How we can help you

Another Answer’s Business Insights Service provides you with the framework for in-depth analysis and projections. Please get in touch to see how we can help.

Published On: July 13, 2023

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