Reading a set of company accounts when you are not an accountant

Before taking a job at a small firm, paying a large deposit to a builder, or extending credit to a new trade customer, there is a free check most people skip. Every UK limited company files accounts at Companies House, and the register is open to anyone with the company's name or number.

The catch is that small-company accounts are deliberately thin. Micro and small entities can file abridged balance sheets with no profit-and-loss statement, so you rarely get to see revenue or margins. Even so, four items reward attention.

The first is cash at bank. It appears under current assets and is hard to dress up. A company that turned over visible activity all year but holds almost no cash at its year-end is financing itself from somewhere, and the balance sheet usually shows where.

The second is net assets, the figure at the bottom of the balance sheet. Negative net assets mean liabilities exceed everything the company owns. That is survivable, especially in young companies backed by a supportive owner, but it means the business depends on someone's continued patience.

The third is the creditors line, particularly amounts falling due within one year. Compare it with current assets. If short-term debts dwarf short-term resources, the company is running on its suppliers' money or a director's loan, and either can be withdrawn.

The fourth is the filing history itself, which many readers find more informative than the numbers. Accounts filed at the last legal moment year after year, extensions requested, a registered office that hops between accountancy firms, or a string of resigned directors all tell you how the company is run. Companies House also shows charges, which reveal who holds security over the company's assets. A lender with a debenture over everything gets paid before you do if things go wrong.

What the accounts cannot tell you

Accounts are historical documents, often published nine months or more after the year they describe. A company can deteriorate badly inside that window. They also consolidate nothing about the humans involved, so it is worth clicking through to the directors' other appointments. A director trailing several dissolved companies in the same trade is a pattern, not a coincidence.

None of this replaces professional due diligence for serious sums. For everyday decisions, though, twenty minutes on a free public register moves you from taking a company's word for its health to forming your own view, and businesses that know their customers can check tend to behave as if they will.