Management accounts are different from the annual accounts filed to Companies House, as they are for internal use and are not mandatory.
However, having up-to-date management accounts is essential to help business owners and managers make informed decisions based on the latest financial data.
Management accounts that are clear and concise can help businesses to make well-informed decisions. Businesses that monitor performance through the production of management accounts can benefit significantly from the availability of this information, identify trends and respond accordingly.
From introducing process efficiencies to identifying sales issues or reducing expenses, having financial reports produced on a monthly or quarterly basis provides businesses with essential insights for strategic decision making. This article explains what management accounts are and the key business advantages that they deliver.
What are management accounts?
Management accounts are financial reports produced on a monthly or quarterly basis, which include important financial information that supports strategic decision making.
Management accounts include key performance indicators (KPIs) so that managers or business owners can have up-to-date information, such as sales trends and data, to help identify any cashflow problems that need to be addressed.
Why do you need management accounts?
When you are busy running a business, it can be difficult to keep on top of your financial position from day to day. If you have financial reports that provide you with key information about how your business is performing, you can make fast, data-driven decisions that can improve business performance.
For example, you can gain up-to-date insights into sales of a specific product to identify if there are any issues with the sales funnels, production processes or marketing. You can also see how a team or an employee’s performance contributes to overall business performance.
What are the advantages of management accounting?
There are many business benefits to be gained from regular management accounts; these include:
Better view of cashflow
It is essential to understand your cash position, and your cash flow statement will be able to keep you up to date with this information.
Informed decision making
By reviewing management accounts, you can make decisions that will help drive the business forward. When you make business decisions without financial statements, you might not be making the right decision as you don’t have the data to back the decision.
When you have a better overview of your finances, you can plan ways to be more tax efficient throughout the year rather than only factoring tax efficiencies into your business when your annual statutory accounts are produced.
Another key benefit of producing management accounts is that it enables you to monitor specific business areas’ performance closely. From having up-to-date information about sales and income to team performance, if there are any concerns, these will be highlighted in the financial reports.
Simplifies the End of Year Accounts
If you have management accounts produced on a monthly basis, this helps to collate all of the information required for the end of year accounts so that the process will be faster and simpler.
What should be included in management accounts?
Management accounts typically include a profit and loss account, a balance sheet, a cash flow statement and a short report. Management accountants can customise your reports to include your business’s most important financial statements.
As a business, you can decide the key performance indicators that you want to produce in your management accounts, which will provide you with all of the data you need to make effective business decisions.
You may want to include employee performance data or data related to different departments within the business. Your profit and loss report can include detailed information about your expenses to help you to decide whether to explore opportunities for cost reduction by switching suppliers or streamlining processes.
Cash position information might include historical data to compare the current cash position to, as well as a budget to help to manage day to day finances and avoid overspending.
The balance sheet gives you a complete business overview, including assets, liabilities and sources of finance, to show the business value and the ability to meet any debts.
How can Ascott Blake organise your management accounts?
Ascott Blake are professional Chartered Certified Accountants with many years of experience in producing comprehensive accounting and business services for small businesses.
We produce management accounts for a wide range of clients across all industries to enable them to keep track of financial health and make strategic decisions that contribute toward the growth of their business.
Our expert team will be happy to produce monthly or quarterly management accounts and provide professional advice to support effective financial decision making to support your business growth.
Management accounts can be produced in-house, but our clients trust us to provide the most comprehensive and useful financial reports while they can focus on the day-to-day running of their business. We assess business-specific performance KPIs and business needs to produce the most beneficial financial reports for each business.
Management accounts provide essential insights into how your business is performing and enable a business owner or management team to make informed strategic decisions.
Businesses that produce regular management accounts can monitor performance in greater depth, and issues can be quickly identified from monthly financial reports. Once problems have been highlighted in the reports, managers can implement actions to boost business performance, drive efficiencies, reduce costs, etc.
Ascott Blake is a trusted chartered accountant providing a comprehensive range of accounting services to small businesses across Hertfordshire and Essex. Contact us today to find out more about our management accounts services and the many benefits we can deliver for your business.
What are management accounts vs financial accounts?
The key difference between financial accounts and management accounts is that financial accounts are prepared for external audiences, while management accounts are produced for the business owner or management team.
Financial accounts must comply with accounting standards as a legal requirement, while management accounts can be customised to include specific data as required and can be produced in the most suitable format for the business.
Management accounts will usually be prepared on a monthly or quarterly basis, while financial accounts refer to the end of year accounts prepared annually.
Is management accounting subjective or objective?
Management accounting is mainly regarded as subjective due to the fact that it is produced for internal use by a management team or business owners. The data is analysed by people who have a personal interest in the business and who have their own opinions about the data.
What ARE the limitations of management accounting?
While management accounting can provide a vital method of performance monitoring, there are certain limitations. For example, the lack of standardisation in the reports means that it is not always easy to compare business performance against competitors on a like-for-like basis.
Management accounting also requires a good level of accounting knowledge to prepare the reports, which is why many businesses choose to use a chartered accountant to produce their monthly or quarterly management accounts.