The importance of management accounts

Checking your bank account periodically and doing your year end accounts right up to their deadline does not necessarily make for the best financial management. For lots of small business owners, management accounts are the answer when it comes to getting more control over the numbers. As they give very current information, management accounts can often be far better assistance when it comes to making decisions.

Let’s take a look at what they consist of and how they can be an essential tool for any ambitious business owner.

What do Management Accounts show?

Management accounts are not a legal requirement and therefore there is not a standard format for how they should look. Instead, management accounts are often driven by what information the managers of the business need and want. They can cover whatever period needed and be as complicated or as simple as you want. Typically you could expect to see a profit and loss account, balance sheet, cash flow statement and  some performance indicators, perhaps by product or location to show how different parts of the business are performing. Crucially,  management accounts should provide some analysis of the information - by way of commentary and statistics. Managers of a business shouldn’t be wading through reams of data - the key headlines should be summarised in the management accounts.

Why do I need them?

Management accounts are there to provide managers with the tools they need to make decisions about where to take the business.  When starting out the business or applying for a loan a business plan is usually prepared which includes financial projections.  The management accounts should be compared to the business plan to see what areas are performing as planned and which ones are not in line with the plan.  This can be areas that are either above or below expectations.

Based on the information produced in the management accounts it may be decided to discontinue some area or expand more rapidly into an area that is growing strongly.  The management accounts can also identify areas that need attention such  as if trade debtors are higher than expected there may be a need to employ someone to collect debts or outsource this work to a debtors collection agency.

We can help

Management accounts prepared by your local TaxAssist Accountant will arm you with the information you need to make the best decisions about where to take your business.  Contact us today to find out more about management accounts and how they can benefit your business.

Date published 26 Mar 2014

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.