Statutory accounts and management accounts propose to monitor financial movement and allow for reporting on current progress, previous successes/failures and provide forecasts for the future. To those new to business management (or those in the know), these words may sound like over-complicated accounting jargon. However, once simplified, they are quite easy to understand, and that is why we like to make things simple for you.
A statutory account is a report that is prepared annually by limited companies – simply to break down and showcase financial actions taken in the previous year. This does not include unique expenses or invoices, as it is produced to form a statement of overall spending. A statement would typically include a profit and loss report, and a balance sheet. The primary reason for producing statutory accounts is to share annual financial information with shareholders and HMRC.
Statutory accounts have a very generic format which enables them to be easily understood. These are mandatory for all limited companies. They are only completed once a year. They over an invaluable overview of business finance, which is great for helping the business owner understand day-to-day operational costs i.e. deductions, taxes, payroll.
These reports are produced to allow high-up individuals of the business world to make decisions based on the financial position of the company. These include specific bits of data that are useful for the management’s current needs, i.e. showing dips in sales. They are often exclusively used for internal decision making, rarely being to shareholders. These reports can be opted to be made quarterly, monthly or weekly.
There is no set format, therefore, management accounts may be slightly more challenging to understand. They do not need to be completed for official time frames or deadlines, these are decided by business personnel. Management accounts offer a true reflection of where the business is at financially, allowing the business direction to be adjusted based on successes and failure.
What one do you need?
Knowing what each type of account is and being able to compare the differences between them, enables business owners to make the best decisions in order to utilise them for future needs.
Management accounts provide more flexibility in terms of design, formatting, timing, information required etc. Whereas, statutory accounts are useful because they provide a framework to work towards, particularly useful if this is something that is new to you. Statutory accounts are also useful if you just want a general overview of the business accounts, whereas, management accounts really dig into the details focusing in-depth analysis of the business.
Both types of accounts are extremely useful to aid in reviewing your current financial situation, but management accounts have more benefits when it comes to forecasting and planning for the future. The ability to tailoring management accounts to specific time frames enables progress and adjustments to be made throughout the year (from a statutory account perspective, it is never a good idea to only check your accounts once a year).
If you are struggling (or just want some advice) to get a grip on your business’ financial management, our team of experts are on hand to give you the support you need. Register your details now to get a free callback.