What Are Management Accounts And Why Do I Need Them?
“What gets measured gets managed” – But what exactly does that mean?
If you’re running a business, it is vital that you have proper measurement reporting & tools, that you understand in place, so you can quickly & easily see where you are now & where you’re heading.
Having accurate & up to date information is key to making good decisions!
What are management accounts?
Management accounts are a regular report of the financial position & performance of your business. They show how much money you’re making, check on your cash flow & working capital, including: your bank balance, who owes you & who you owe.
The minimum information should include Profit & loss account, Balance sheet, Debtors & Creditors reports. They are typically produced monthly or quarterly.
Why do you need management accounts?
The purpose is for you to track whether your business(es) are profitable & comparing performance to plan, enabling you take stock of how you are doing, spot any potential issues & react to them quickly.
The benefits of having management accounts
They give you regular visibility & so control over the business, they are a check on your profits (or an alert to losses), of your bank balance, how much money you’re owed & how much you owe.
They can help you monitor sales growth check if your marketing spend is delivering, so you can stop or tweak a campaign. Without a regular check of cost vs. performance, how do you know if it’s working?
The most common benefit to our clients is they have help them to improve their cash flow; by highlighting late payers it can avoid them becoming bad debts.
Cost control: a regular review of what you spend, keeps you abreast of what you’re spending & why.
To help you understand your tax obligations, so no nasty surprises in the year end accounts.
Having regular financial information can also accelerate your business growth.
Without regular reporting you won’t know:
1. If you will meet your targets.
2. The impact of not meet your targets.
3. Checking if there will be enough in the bank to pay meet financial commitments.
4. If the bank balance will be enough to pay you what you need.
5. If you exceed targets what are the tax planning opportunities for you to keep as much as possible of the surplus funds
Our detailed reports have much more information than you get from your accounting system including: KPI’s give a high-level summary of the business performance and are crucial in spotting trends and potential issues.
A simple example of an important KPI is debtor days i.e. the amount of time customers are taking to pay you on average. Understanding that if this went from 30 to 60 days, it would be a big blow to cash flow, because the money is taking twice as long to come in, potentially effecting your ability to pay your bills.
If you find this interesting or helpful, why not book a meeting to see how we can help you?
