What are Management Accounts?

Management accounts are financial reports which offer insight into the financial performance of a business. These accounts are often used by business owners and management teams whose roles entail strategic decision-making.

Whilst management accounts will vary from business to business, there are three important financial statements in every business:

• profit and loss statement
• cash flow statement
• balance sheet

Together, these documents provide important numbers and a snapshot of your finances. They are usually produced on a monthly or quarterly basis.

Why are Management Accounts so important?

Management accounts allow you to gain a detailed understanding of your business which is vital if you want to achieve success. The reports contain important information such as how much money has moved in and out of the business, your cash flow situation, and your profit and loss. 

 
Here are just some of the benefits of keeping regular management accounts:

Getting to know your business better

Management accounts give you up-to-date financial information of your businesses. When you have an accurate overview of your business you can make better decisions.

Management accounts will help you see operating margins or identify products that are selling slowly. You will be able to monitor sales volumes which will help you plan staffing levels more efficiently, and you will have more information to plan your stock or service levels to ensure you have enough to meet demand.

Plan for the future

Management accounts help you to make informed decisions for your business. By spotting patterns in income and cash flow, they can help you to predict your future revenue and make plans. 

Management accounts also help you plan for slower months when cash flow might be lower due to seasonal differences. 

Growing your business

When you can identify trends in sales quickly you will also have better information for planning growth, diversification, or expansion. Without the information, all you have is gut-feeling, and in business that can cost you.

Monitor your costs

Using management accounts, you can accurately track your costs. This might highlight areas where you are spending too much and if you need to reduce your expenses, which will provide the basis for better cash flow forecasting and planning. 

When you understand your cash flow, you can make any needed improvements.

Reduces Year End audit and accounting costs

Your year-end accounting costs should be lower when you have a system that involves the regular preparation of management accounts. Issues and queries are flagged up early and can be resolved immediately, rather than trying to do everything at the end of the year.

How often should I prepare my Management Accounts?

Management accounts are usually prepared on a regular and consistent basis to ensure a business owner or management team are getting the most out of monitoring their efforts. There is no set rule for this but typically they're produced monthly, or quarterly.

You can compare your monthly management accounts to monitor not just your financial growth, but your performance as well. 

What information should I include in my Management Accounts?

Management accounts are bespoke to your business, However, here are a few helpful suggestions of what information to include.

Key performance indicators (KPIs)

Every business has a set of KPIs – a list of financial and performance based, measurable goals you want to achieve within a specific timeframe.

KPI areas you might want to focus on include: 

•  growth in sales 
• gross profit margin 
• cash flow 
• number of customers 
• customer satisfaction levels 
• number of sales leads 

You can use your management accounts to check if you are meeting your KPIs. If you discover you aren’t on track, you’ll know where you need to make improvements. 

Profit and loss (P&L)

A profit and loss statement outlines your revenue, direct costs and expenses. Subtracting all expenditure from income will show your business’ net profit or loss. 

Management accounts can include a P&L for different departments or locations to show which are performing the best. Compare your income monthly: are you regularly over or under spending? Break your profitability down by department or location, compare your actuals to your forecasts, and ask yourself, are you setting realistic profit targets, or do you need to re-evaluate?

Cash position

Having a detailed understanding of your cashflow is vital for everyday budgeting, investment and funding decisions. Your management accounts look at your cashflow data to identify patterns. For example, which areas of the business have the most operating costs?

With an understanding of these patterns, you can better forecast for the future by planning around higher or lower income months, and allocating money optimally across the business.

Balance sheet

Your balance sheet provides an overview of your net worth, showcasing your assets, liabilities and owner’s equity. This helps you to understand how much your business owns compared to how much it owes, and to what extent you can pay your debts. 

How we can help

We can help with the preparation of timely and accurate management accounts providing you with important up-to-date information on the financial performance of your business.

Our experienced team can work using cloud and traditional accounting, taking into account your needs and requirements.

We can provide Key Performance Indicators (KPIs). The analysis and commentary will provide you with valuable insight and understanding of the finances and performance of your business.

We will also work with you to save you money. Your management accounts will offer the opportunity to identify any inefficiencies and stop costs from running out of control. We will use the management accounts to consider remuneration and tax planning, reducing your tax bill where possible.

We can also assist in the production of budgets, forecasts, cash flow projections and the comparison of actual performance against budgets, provided with clear and concise commentary.

For further information and advice on management accounts, please get in touch today 01733 247 500.