The myth of audited accounts (or how to save money on your accountancy fees)
I was having a discussion yesterday with a group of nurse entrepreneurs and we were all comparing notes and strategies – particularly during the start-up stage. One of the really interesting discussions was about whether or not you have to have audited accounts or not.
Now for the uninitiated, you may not even realise that there are two different kinds of accounts – audited and unaudited. Put simply, audited accounts are prepared by an accountant and are then audited, which is process whereby they check a random number of transactions have been processed accurately. So for example, they may check that your £200 travel expenses on the 31st December was really a business trip or a taxi back from some disreputable nightclub in the heart of the city. Unaudited accounts are also prepared by an accountant but they take your word for it that the transactions are all correct.
One of the other big differences is the cost. If you want audited accounts you have to (surprise surprise) pay some to audit them. Often you pay several people to audit them including a senior accountant (the auditor) who signs them off as audited. This can easily add several hundred pounds (if not several thousand pounds) to the cost of preparing your accounts.
If you have come from a public sector background or a large private sector company, it is easy to assume that all accounts have to be audited as that is just the way things are always done. Many people don’t realise that you may be able to have unaudited accounts which still meet all your legal requirements but can save you a lot of unnecessary expenditure – particularly in the early days.
So what are the pros and cons? Well the most obvious con is the costs and the hassle – it is much easier and cheaper to produce unaudited accounts and in fact I have only prepared unaudited accounts for the last 5 years as a social entrepreneur. The pros are that some public sector funders (but by no means all) want them and at a certain size you have to have audited accounts whether you want to or not.
Initially we were worried that our unaudited accounts wouldn’t be taken seriously and we would have to go and get them audited. Over 5 years though, we have secured £50,000 of bank lending, £60,000 of venture capital and over £250,000 of public sector contracts all by using unaudited accounts. In all that time, n-one has even asked us why our accounts were unaudited let alone asked for them to be audited.
So what is the legal position? Well Companies House provide some really useful guidance information at Companies House and Business Link (who do have their uses from time to time) have some additional info here and here.
In a nutshell, you can choose to only produce unaudited accounts if:
a) you have a turnover of not more than £5.6 million and
b) you have a balance sheet total of not more than £2.8 million
On a more practical level, if your business would really notice the saving in accountancy costs of several hundred pounds (and you can only dream of having a £6 million turnover) then you are probably exempt from having audited accounts.
What I would say to people though is make sure you are ready to be audited, whether or not you are planning to have audited accounts. Firstly it is good practice and secondly, your members can demand an audit (depending on your legal structure). In practice, this means keep all your receipts, cheque books and bank statements in a simple system so that you can prove what that £500 taxi ride was for if anyone ever asks.
So if this little nugget of advice has saved you a few hundred pounds or even a few thousand pounds, you can show your appreciation by buying me a pint at Voice 08 or RCN Congress. I will be the balding fat bloke propping up the bar coming up with innovative and entrepreneurial ways of getting a free pint from my dear beloved readers :)