If you run a business, your accountant can prepare accounts for you. While you may consider accounts to be just a pain, they do have a number of uses.

1. Legal requirements

Companies are legally required to submit accounts to Companies House, usually on an annual basis. Larger companies may even need these to be audited by an independent Auditor.

Even if you do not run your business through a company, you will need to have some form of accounts for the purpose of preparing and submitting your tax return.

2. For other people to use

You might not want other people to see your accounts. For a company, this is unavoidable although small companies benefit from rules which limit the amount of information that has to be shown in the accounts filed at Companies House.

However, other third parties you deal with may want to view your accounts as follows:

• Banks want to see accounts before they will agree or renew any overdrafts or loans for the business.
• As a self-employed person, banks and other lenders may also want to see your accounts before lending to you personally (e.g. for a mortgage).
• Customers may wish to review your accounts before entering into a contract with you, to assess whether you are capable of completing the contract, although this may be unusual for a small consultancy business where your CV and references or testimonies from previous customers may be more useful.
• If you intend to sell your business, a potential buyer will want to examine the accounts (possibly covering several years), along with other documentation before completing a deal.

3. To help you monitor your business and make decisions

So your accounts are useful for everyone else, but what about you? You have bust a gut to get your business going, and now you have customers and money coming in. But if you also have costs (such as rent of an office space, interest on a loan, material costs, stationery, or labour costs if you have contributors or staff), then how do you know whether your income covers these costs, and so whether you are making a profit? Is it worth all the effort? Your accounts should show you this.

While accounts are often prepared on an annual basis for external use, as a business owner you may require them much more regularly – monthly or quarterly – so that you can see what is happening to income compared with costs. This allows you to act. For example, if you are not making sufficient profit, or are even making a loss, you may need to make decisions about increasing prices, cutting costs or even changing the activities of the business.

Accounts won’t tell you everything, but if you have and understand the basic information they show, then you will have more control over your business.

As with all our information in The Business Lounge, this is not comprehensive advice and may not apply to your specific circumstances; to discuss how any of these issues affect you, contact your accountant.