Management accounts provide more detailed and up-to-date information on a company’s financial performance than traditional financial statements. They are typically prepared on a monthly or quarterly basis and used by managers to make informed decisions about the future of the company.
In this article, we will explore what management accounts are and why they are beneficial for your business.
What are Management Accounts?
Management accounts typically include financial information that is relevant to the specific needs of the management team. This information may vary depending on the organisation and its industry, but commonly includes the following:
- Revenues – Information on sales and other sources of revenue.
- Costs – Information on the costs of goods sold, labor, rent, and other expenses.
- Profits – Information on gross profit margins and net profits.
- Cash flow – Information on the flow of cash into and out of the organization.
- Key performance indicators (KPIs) – Metrics that track progress towards specific goals, such as customer retention rates, employee productivity, and sales growth.
Management accounts may also include non-financial information such as employee headcount, production volumes, and customer satisfaction metrics.
The information provided in management accounts is used by management teams to make informed decisions about the organisation’s operations and future direction. By analysing this information, management can identify areas where improvements can be made, evaluate the success of past decisions, and make adjustments to their strategy to optimise financial performance.
Benefits to businesses of creating Management Accounts
Real-time financial information & improved decision-making.
One of the primary benefits of management accounts is that they provide real-time financial information. This means that management can make informed decisions based on current financial data rather than relying on outdated information. Real-time financial information is particularly important in fast-paced industries where decisions need to be made quickly. For example, management accounts can show which products or services are most profitable, which departments are the most productive, and where cost savings can be made.
By reviewing your financial information in a proactive manner, it will allow you to be aware of upcoming tax liabilities well in advance. This will allow you to budget and consider incurring certain expenditure which may mitigate your tax liability.
Better financial management
Management accounts provide a detailed view of a company’s financial performance, including revenue, expenses, and cash flow. This information can be used to identify areas of the business that are underperforming and take corrective action. By improving financial management, companies can increase profitability and reduce the risk of financial problems.
Improved cash flow management
Cash flow is critical for any business, and management accounts provide detailed information on cash inflows and outflows. This information can be used to identify potential problems and take corrective action before they become serious. For example, if a company’s accounts receivable are high, management can take steps to reduce the time it takes to collect payments.
Improved budgeting and forecasting
Management accounts provide detailed information that can be used to improve budgeting and forecasting. By analysing past performance, management can make more accurate predictions about future revenue and expenses. This information can be used to develop more realistic budgets and forecasts that can be used to guide the business.
Use a Chartered Accountant to Create your Management Accounts
In conclusion, management accounts are a valuable tool for any business. They provide real-time financial information that can be used to make informed decisions, improve financial management, and increase profitability. By having management accounts prepared on a regular basis, businesses can stay on top of their financial performance and make informed decisions that lead to long-term success.
Johnston Wood Roach are professional chartered accountants based in Waterlooville and work with businesses to help prepare management reports for businesses. Contact our team today on 023 9226 9977 to discuss your business requirements.