Best practice – prompt accounts!
If your company’s vision is to “scale up” operations, one important practice that you should adopt is to ensure that the company’s financial accounts are prepared promptly at the end of the financial year.
Our recommendation is that the ‘Financial Accounts’ should be finalised within two months of the end of the financial year, to enable prompt distribution to shareholders.
In preparing the annual financial accounts, care needs to be taken in the preparation of the ‘Balance Sheet’, to ensure that accounting standards of what is required in financial accounts has been abided by. In particular, ensuring that ‘Current Liabilities’ clearly reflects all liabilities which the company could be called upon to pay, within the next 12 months.
There was a significant court case in 2011…”Centro Properties Case” that the Court decided the company had understated its ‘Current Liabilities’ in the ‘Balance Sheet’ that a lender relied on as part of lending additional funds to the company.
The Court was very critical of the Directors for signing off on financial accounts, which the Court decided had been incorrectly prepared.
All companies, whether they are large or small, are covered by corporate law court decisions.
It is a good strategy for Directors to ensure that enquiries are made relating to the details being shown within ‘Current Liabilities’. It is the Directors’ responsibility to ensure that the ‘Financial Accounts’ are correctly prepared.
The benefit of “scaling up” companies in having financial accounts ‘prepared promptly’ at the end of the financial year is that the company can quickly respond to any requests for ‘Financial Accounts’ from banks, lenders or even potential investors.