As a business owner, you know you need to produce statutory accounts – that’s a given. But do you know the difference between statutory accounts and management accounts, when they should be used, what management accounts and statutory accounts monitor about your company’s financial actions and company’s performance, and the purpose of both?
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 below.
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 report (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.
- Cash Flow 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.
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 to get to grips with a company’s financial health.
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 account, 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 report including commentary and insights.
So, What’s The Difference Between Statutory Accounts And Management Accounts?
As you can see from the outline above, both statutory accounts and management accounts are similar in the information that may be collected, but are quite different in how the accounts are prepared and who they are prepared for.
When you prepare statutory accounts, you’re preparing accounts for external bodies to get a good idea of your company’s financial position during the previous year. This information will be required by Companies House. You must submit statutory accounts to Companies House no later than 9 months after the financial year has ended.
When you prepare management accounts, you’re preparing accounts for your management team. The idea is still to give you an idea of your company’s financial year performance, but usually in a more immediate sense to help steer any future decisions for the rest of the year to improve financial performance.
Let us sum up those key differences below.
Statutory Accounts vs Management Accounts: Summary
Purpose
A statutory account will show a full set of financial reports following an in depth analysis that indicate your limited companies’ financial performance over the previous financial year. It’s essentially a roundup of previous performance.
A management account will include a summary of multiple financial actions in the here and now. It’s purpose is to provide a snapshot of financial performance on a monthly or quarterly basis to ensure the business is moving in the right direction. It may not be as much of an in depth look at business performance as statutory accounts are, but they’re key for correcting a business’ course to ensure they achieve their goals.
Audience
Statutory accounts are for Companies House and external stakeholders to provide them with an in depth overview of business performance. Management accounts are for your top management to help steer your business in the right direction.
Style
Preparing statutory accounts is a job every company in the UK will need to do each year, so the forms are standardised to ensure consistency from company to company. This way, all accounts submitted to Companies House satisfy the relevant accounting practices and standards.
When you produce management accounts as a business, you can produce them however you please. If you aren’t particularly interested in sales performance of one line of season-specific products, for example, you can simply leave this out of your management reports and focus on them again in another quarter that’s more relevant. You can produce management accounts in whatever style and format you like to suit your business needs at that time.
Requirements
Annual statutory accounts are a legal requirement – you MUST submit them each year without delay. Management account reports, on the other hand, are nice-to-haves, but aren’t legally required.
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.
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