N°1 · Guidance
Reading your own accounts without an accountant in the room
A short guide to the four questions a set of financial statements can answer directly, and the ones it cannot.
Most owners receive their annual accounts, look at the profit figure, and file the document. That is an understandable response to a form of writing designed primarily for regulators. But four useful questions can be answered from a standard set of statements in a few minutes, without any technical training.
Did the business convert profit into cash?
Compare the profit for the period against the movement in the cash position. A persistent gap between the two is not necessarily a problem, but it always has a cause, usually debtors, stock or capital expenditure, and that cause is worth naming.
Where did the margin move, and why?
Gross margin expressed as a percentage of revenue is comparable between periods in a way that absolute figures are not. A margin that has moved by more than a point or two usually reflects a change in pricing, input costs or sales mix, and it is worth knowing which.
What is owed, and when does it fall due?
The balance sheet distinguishes between obligations falling due within a year and those falling later. Reading the two together with the cash position gives a rough sense of near-term resilience.
What has changed in the owner's position?
For an owner-led business, movements in directors' or partners' accounts often tell a clearer story about the year than the profit line does.
What the accounts will not tell you
Historic statements describe a period that has closed. They do not indicate whether current pricing is sustainable, whether a customer is about to leave, or whether the next twelve months are funded. Those are forecasting questions and need different documents.
This article is general information, not advice for any particular business or jurisdiction.
General information only. It is not accounting, tax or legal advice and does not take account of your circumstances or jurisdiction.