Small companies that don't use the micro-entity accounting standard always include a director's report along with the accounts, but most of those reports just include the bare minimum amount of information required by law. If you fall into this category, are you missing an opportunity to communicate your company's story to anyone who reads your accounts?
In the UK, the directors’ report has to contain certain information prescribed by the Companies Act 2006. Normally your accountant will make sure that your report contains the minimum information required by the law, including:
- the company’s principal activities;
- the names of the people who, at any time during the financial year, were directors of the company;
- the amount (if any) that the directors recommend should be paid by way of dividend (unless the company takes advantage of the small companies exemption from including this statement); and
- a statement in respect of disclosures provided to auditors (only where the accounts are audited).
There is nothing, however, to stop you from including additional information in your directors’ report over and above what the law requires - and indeed it may be beneficial to do so.
Think about all the people that might read your accounts: your bank; other potential lenders; customers and suppliers; credit rating agencies; employees, perhaps. Is there specific information you might want to convey to those groups of people, above and beyond the "bare numbers" shown in the accounts? Whether your company has had a good, bad or indifferent year, you may want your report to:
- provide background and context to the company’s recent financial performance and current financial position;
- give some reassurance to credit ratings agencies, lenders or suppliers that the company is in good financial health; or
- offer existing or potential investors the “heads up” on your exciting future plans for the business.
At the same time, of course, you won't want to be disclosing information unnecessarily where it might harm your business; for example, you might not want to be telling your competitors about that great new product or service you're about to launch. So there is, of course, a balance to be struck.
The only other caveat is that your report should be consistent with the underlying accounts and not mislead users of the accounts.
If your company is subject to the small companies regime, you are not required to include a copy of your directors' report in the accounts that are filed at Companies House; but you may still do so if you wish. So not only do you get to tell your company's story; you also (sort of) get to decide who reads the story, too!
If you would like to discuss your company's directors' reports in more depth, contact us today.