What is an asset?

An asset is something that a business owns that has an inherent value and can be converted into cash, this does include cash.

How often do companies have to file accounts?

A private company must file its first accounts with 21 months of the date of incorporation. After that, they must be filed within 9 months of the company’s accounting reference date, as defined by Companies House.

If they are not filed within the appropriate amount of time, then penalties will be applied, these range from £150 to £1500 for a private company and from £750 to £7500 for a public company.

What steps can be taken to improve cashflow?

Cashflow is very important to a business. It is often said that cash is king and you need to ensure that your business has a steady flow of it coming in. There are a few key things you can do to ensure a good cash flow.

1. You can credit check your clients before doing work for them, so you know that they are able to pay.
2. Be proactive in invoicing and chasing up invoices.
3. Ensure you meet your deadlines so as to be able to invoice on time and ensure you get paid.
4. Look at accepting credit cards if you don’t already as it makes it easier for your customers to pay you.
5. Get as much payment as possible up front.
6. Keep your costs and general outgoings as low as possible.
7. See if you can increase your credit / payment terms with suppliers.
8. Keep the sales and therefore the cash coming in.

What are shareholders funds?

Shareholders funds are the equity left in the business, which is owned by the shareholders as they in turn own the company and its assets. It is essentially all assets minus all liabilities, and is shown on the company’s balance sheet in their accounts.

It can be used as a guide in smaller companies to show if a profit has been realised, or if the business made a loss. It can be impacted by dividend payments, and revaluations of assets within the company however, but it is a good basic guide as to the financial performance of the business.

What is working capital?

Working capital is a way of telling how ‘liquid’ the cash available to a company is. For example a business may have £1m of assets, and owe its creditors £500k, with a broad brush this means that if the creditors instantly called in the monies owed the business could use its assets to cover the amount owed.

Not all assets can be quickly converted to cash or means to pay a creditor, which means that you need liquid assets to cover your short term commitments. Working capital allows you to see if a company can meet its short term commitments with the liquid assets it has available to it.

A positive working capital is generally a good sign, and shows that the company has planned and is able to cover its short term liabilities using cash/stock/current debtors and other assets that can quickly be converted to payment.

A negative working capital means that if all short term creditors called in the debt, the company would not be able to meet these short term demands. Most companies start with a negative working capital as directors/banks inject cash to the startup which is repaid over a period of time. So the working capital should be heading towards positive territory in the first few years of the business, if it heads the other way, into negative territory it may indicate large scale investment using borrowed funds, or that the company is not generating enough cash.

What is an asset/depreciation?

An asset is anything a company owns which is shown on its balance sheet, this can include property, machinery, computers and more liquid forms of asset such as cash/investments and current debtors.

Assets need to have a value (that can in turn be converted to cash), and with many larger purchases such as plant machinery or large computer systems they have an initial value when purchased, this will decline in value over time. Instead of these large purchases being put into one specific month in your P&L, they are ‘written down’ over their useful life.

So if a company purchased a new car for £40k, and its useful life  was 10 years, they would have it as an asset on their balance sheet (i.e. a positive to the business) and depreciate it by £4k every year until the end of its 10 year useful life, rather than have to take a large hit in the year they purchased it.

This is widely used and many companies will have a policy that items over a certain value are written off of over a specific period depending on the item and its application, this is usually shown in the company accounts.

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All the best,

The company-accounts.com team