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Reading your company accounts: what a lender sees
Every incorporated company files accounts, and most directors sign them off once a year and move on. But a set of accounts is not just a compliance chore — it is the story of the business told in numbers, and it is one of the first things any lender or counterparty reads. Understanding what they contain, and what an outside reader looks for, makes you a better-informed director and a more credible borrower. This piece walks through the three parts of a set of accounts in plain English, and points out what a lender actually reads in each. It is general information, not accounting advice — your accountant remains the authority on your own figures.
The three statements
A full set of accounts has three financial statements, each answering a different question about the company.
- The profit and loss (P&L). Did the company make money over the year? It runs from revenue at the top down through costs to the profit (or loss) at the bottom. It answers “is this a viable, profitable trade?”
- The balance sheet. What does the company own and owe at a single moment — the year-end date? Assets on one side, liabilities on the other, with the difference being what the company is worth to its owners. It answers “how solid is it right now?”
- The cashflow statement. How did cash actually move — from trading, from investment, from financing? It answers “where did the money come from and go?”, and it is why a profitable company can still run short of cash.
What a lender reads in the profit and loss
On the P&L, a lender looks past the headline profit to its quality and direction. Is revenue growing, flat or falling? Is the company profitable at the operating level — before one-off items and financing — which shows the core trade stands on its own? Are margins steady, or being squeezed? A single good year matters less than a consistent, believable trend. A lender also reads the P&L alongside the affordability question directly: profit is the cushion that repayments come out of, which ties into how a lender assesses affordability.
What a lender reads in the balance sheet
The balance sheet is where solidity shows. A few things an outside reader looks for, without needing to be an analyst:
- Net assets. Total assets minus total liabilities. A positive figure means the company is worth something on paper; a negative figure (net liabilities) is a flag that invites explanation.
- Working capital. Current assets (cash, debtors, stock) versus current liabilities (what falls due within a year). Comfortably more short-term assets than short-term debts suggests the company can meet its near-term obligations.
- Debtors and creditors. Money owed to the company and money it owes. Ballooning debtors can mean customers are paying slowly; stretched creditors can mean the company is leaning on suppliers to fund itself.
- Existing charges and debt. Whether assets are already pledged, and to whom — which connects to debentures and floating charges.
Why small-company accounts show less — and what fills the gap
Most small UK companies file abbreviated or “filleted” accounts at Companies House: often just a balance sheet, with the profit and loss left off the public record. That is entirely legitimate, but it means the publicly filed accounts alone do not tell a lender everything. This is exactly why a lender will also read live data — recent bank statements and, with consent, Open Banking — to see the trading the filed accounts do not show. The filed accounts set the frame; the current data fills it in. Keeping filings current and clean still matters, as covered in Companies House filing deadlines.
What this means for a director who wants to borrow well
You do not need to become an accountant, but you should be able to read your own accounts well enough to answer three questions: is the trade profitable and heading the right way; is the balance sheet solid enough to carry a bit more obligation; and does the cash actually support the repayments you are contemplating? If you can answer those, you can size a borrowing request sensibly rather than guessing — the discipline behind a 13-week cashflow forecast. A director who understands their own numbers borrows better and, when they do borrow, borrows the right amount.
The honest summary
A set of company accounts is three statements: the profit and loss (is the trade profitable?), the balance sheet (how solid is it today?) and the cashflow (where did the money go?). A lender reads trend and quality in the P&L, net assets and working capital in the balance sheet, and fills the gap that filleted small-company accounts leave with live bank and Open Banking data. Understanding all three makes you a sharper director and a more credible borrower — and it is the foundation for every other financial decision the company makes.