Since their introduction in 2008 abbreviated accounts have been both a boon and a bane for small businesses in the UK, simultaneously helping them to ensure their own commercially-sensitive information was protected from prying eyes, while also making it much more difficult for them to gain insights into the business performance (and competitive advantages) enjoyed by their existing competitors or future challengers.
Well, abbreviated accounts will soon be a thing of the past: it’s time to meet abridged accounts.
Whatever they are called, it's essential that at the very least basic accounts are prepared both fior legal complaince but also because a business without accounts has no idea of vital financial information. We offer cost effective and highly flexible options for accounts, tax, strategy and many other services. Get in touch to find out more.
For tax years beginning on or after 1st January 2016 abbreviated accounts have been replaced by abridged accounts, which some had hoped might make competitor analysis just a little bit easier for small businesses.
In theory abridged accounts have been introduced in order to simplify financial reporting and reduce the administrative burden for SMEs. Rather than compiling two sets of statutory accounts (a full set for shareholders and an abbreviated version to file with Companies House), with abridged accounts accountants can compile a single set of accounts to satisfy both requirements.
However, beyond reducing administrative burdens, some small businesses, particularly those operating in highly competitive sectors or competing with an entrenched competitor that’s managed to seize a disproportionately large market share, had been hoping that abridged accounts might help them gain access to more than the “basic balance sheet plus bare minimum notes” that (until now) often comprised the entirety of their competitors’ publicly available annual accounts.
Unfortunately, it’s not quite that simple.
That’s because small businesses that decide to compile abridged accounts will still be able to omit the profit and loss account and directors’ report when they file with Companies House, so a key tool for competitor research will still be out of reach for most SMEs.
However, it’s not all bad news when it comes to competitor research. Scrapping traditional abbreviated accounts could lead to more small business information entering the public domain, even where the directors’ report and profit and loss account are not filed.
Firstly, the balance sheet that forms part of a company’s abridged accounts (and which will make up the bulk of a company’s public financial records, assuming it does decide to omit the P&L and directors’ report when filing with Companies House) should offer more detail than the basic balance sheet that would have been included in the abbreviated accounts.
In addition, and perhaps more importantly, the notes filed with abridged accounts should be more detailed and comprehensive than the few generic, mandatory notes that formed the second part of abbreviated accounts (and which generally dealt with little more than how the accounts were compiled, the accounting standards used etc). For example, the balance sheet notes filed with the abridged accounts will disclose any dividends that have been distributed to shareholders.
Small businesses might be able to use a competitor’s abridged accounts to analyse several of that business’s key performance indicators. For example, by calculating the change in retained earnings from one year to the next, and adding to it any dividends that are recorded in the accounting notes, small businesses can make a reasonable guess about how much profit their competitor’s made in a given financial year.
In addition, in a year or two, when several years’ of abridged accounts have been filed with Companies House, small businesses might be able to make a few other extrapolations, such as whether a competitor’s sales are increasing or decreasing, and whether their profit margins are widening healthily or being squeezed.
Savvy SMEs could also begin mapping these changes in their competitor’s annual financial performance to that company’s new product launches, PR campaigns or key staff hires, using this additional competitor research to understand what might be driving their competitor’s success (or contributing to their decline).
If your SME is itching to take on the competition Accounts and Legal can help you understand the competitive landscape.
Our team of London accountants offer a range of business planning, commercial strategyand financial forecasting services that are designed to help ambitious small businesses take on their competitors.
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