Management accounts are separate from the statutory accounts that you create for HMRC. Instead, they help you to make better business decisions.

When you request management accounts to be made by your accountant, you’re opening your world to a number of data points that can help you understand far more about your business. From costings to margins to forecasts and more. Here’s what effective, tailor-made management accounts can do for you…

Monitor Your Growth

A well-developed management account will allow you to see the growth of your business in real numbers rather than a snapshot of your bank account. 

This doesn’t just refer to the numbers, either; it can also demonstrate the value of your custom. For example, over a period, have you converted late-paying clients into on-time paying clients? Growth comes in innumerable means, too.

Establish Margins and Break-Even Points

There may be a rough idea of these margins, however, they won’t be as accurate as the margins and break-even points detailed in the management accounts. 

One reason for this is inflation; many businesses have not increased the cost of services or products yet the provision of these services or products has increased, meaning the margins have changed.

Show Year-on-Year Performance

Year-on-year (YoY) performance is a vital information source to understand areas of the business that are performing best and to find others that need more attention or need pruning from the branch. 

It’s also important to understand the reason behind the data for the YoY performance variances in order to prepare effectively for similar occurrences in the future.

Measure Against KPIs

Your key performance indicators (KPIs) are how you can measure business success against strategies and campaigns instead of against monetary value. 

For example, has the business’ staff increased by the forecasted amount? Has the business’ procurement of resources been streamlined over the course of 24 months? Or, has the business’ turnover of staff led to a loss in sales during hand-over periods?

Highlight Areas Needing Attention

In many instances, a business’s success is measured against the health of the bank account. But that doesn’t delve into the deeper data points that could tell you there is one cash cow in the business keeping 4 other sinking ships afloat. 

It’s best to highlight the exact departments, campaigns, products, services or staff members that are valuable to the company. Doing this can help you to understand where losses can be cut or more attention can be drawn to areas of potential.

Demonstrate Investment Worth

A business without detailed management accounts that showcase its successes or back up its business plan is not worth it to investors. Where an investor can’t be sure that a venture will allow their net worth to increase, they’re less likely to invest. 

However, management accounts that outline the business’ structure and strategies, with a confident pitcher able to answer all the questions will look far more fruitful.

Make Sound Business Financial Decisions

When you have all the data and information laid out in front of you, the management accounts will be making the business decisions for you.

One thing to remember is that management accounts can be produced at a cadence that suits the business. For example, monthly or quarterly. So, instead of waiting for the year-end to make important financial decisions, you’ll have real-time data to inform for direction.

Create Process Optimisations

In the same sense that you’ll have regular updates to help inform your financial decisions, you can use this data to optimise business processes. 

For example, in the case of funding being allocated to 5 business processes to finalise a project; if the project is able to reach the same completion without one of the processes, the data may suggest reducing the time and expenditure overheads of one of those processes.

Detect Fraudulent Activity

Where a significant period of time has passed – such as a year – fraudulent activity can be well underway. If so, your business may have lost a  considerable number of assets or capital. 

With that in mind, having regular management accounts produced and reported to you by an accountant can help to alleviate the chance of fraudulent activity occurring in your business. Alternatively, these accounts can catch this activity before a significant impact has been made.

Plan For the Future

Using data that showcases your historical successes as well as data that demonstrates your current processes, strategies in motion and value, you can begin to make well-informed decisions about the direction of the business and forecast where it could be in a year, in 5 years and in a decade. 

This will also help you and your business managers to produce new KPIs for the operations and staff to work towards for your next set of management accounts.

Tailor it to Your Business

Unlike statutory accounts, management accounts can be tailored directly to benefit you and your business. Statutory accounts must follow a structured format outlined by HMRC while containing information such as a profit and loss report, a balance sheet, notes about the account and a director’s report. 

Management accounts, on the other hand, can remove data that won’t be useful to the management of the business and include new information such as:

• • Cost Analysis
  • Balance Sheet
  • In-Depth Report
  • Make-or-Buy Analysis
  • Sales Fluctuations
  • Inflation Parallels
  • Key Performance Indicators
  • Cash Position
  • Yeay-on-Year Comparison
  • Departmental Analysis
  • Product/Service Analysis
  • Break Even Point
  • Gross Profit Margins
  • Sources of Finance
  • Opportunities for Success

To learn more about Management Accounts, contact the Phillips & Co Accountants team today. We’ll be able to discuss your business type and what kind of management accounts will work for you. Then, if you want to see exactly how tailored management accounts will drive your business success more than ever before, then we can hit the ground running.