This week I am off to the bank to apply for a Varsity loan for my son. Walking into the consultants office, I know the first thing they will ask me as a sole proprietor is : Can I have your audited financial statements for the past three years.
With Accounting and Tax being my field of expertise I know what they are really asking for is :
Compiled financial statements and Management accounts for the past six months, so I’m going in prepared.
As with any field, the terms used outside the field are not always used as we understand them. So as a sole proprietor and as a small business, who is owner managed the likelihood of needing audited financial statements are nearly nil. But as you are running a business they do need to see your financial statements, which in simple terms is your Profit and Loss over the past year, or 3.
Next they ask for Management Accounts, which show where your business is today.
Firstly, Management Accounts are required when you apply for any loan, but this is not their most important function –
Running a business you need to know on a month to month basis if you are profitable, in order to keep running your buisness. This is what makes Management Accounts so valuable.
So whether you DIY your bookkeeping with the amazing online accounting packages that are out there, or you hire a monthly or quarterly Bookkeeper / Accountant, keep yourself in the know about your business and draw up monthly management accounts.
The final word – what you measure, you can manage.
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