Management Accounts – What are They and do I Need Them?

What are Management Accounts?

Limited companies are required by law to complete and file financial statements each year. Most businesses will engage an accountant to complete this work for the company to be compliant.

Management accounts are a set of financial statements, usually prepared either monthly or quarterly, which provide clear insight into the financial trading position of your business. The management accounts are intended for the use of the Directors and/or Managers of the business and are not filed to HM Revenue and Customs.

What is Included in Management Accounts?

For small and medium sized businesses, management accounts typically include a Performance Summary, Profit and Loss, Balance Sheet and Actual vs Budget Summary. However, the management accounts pack can be tailored for the needs of the company, such as a Cashflow forecast or detailed Debtor list.

Some businesses may also include a Key Performance Indicator (KPI) Report, that would focus of specific ratios and possibly non-financial targets.

Why Do Businesses Need Them?

In the current economic climate, it is more important than ever that business owners have full knowledge and trust in their financial figures. In an ever changing and demanding business environment, it is clear that businesses that have access to up-to-date information are more likely to thrive, than those that do not.

To successfully grow your business, you need to be able to measure your performance throughout the year. That means more than just the occasional glimpse at your bank balance. Indeed, a healthy bank balance does not necessarily indicate a healthy company. Your cash balance is simply a snapshot in time, and fails to consider impending outgoings, trading conditions or the state of your sales pipeline.

Management accounts also give you more control over your business, they provide you with the financial information required to make strategic business decisions to move your company forward and to take decisive decisions based on the current information. Cash-flow problems can be spotted before they happen providing the business owner time to ensure resources are applied correctly.

Management accounts also play a pivotal part in the tax planning process of the business and its owners, meaning that there is no nasty surprise when the tax return is completed.

By completing regular reviews of your finances, it means that managers can detect any fraud that may be occurring within the business. The longer the time between financial reviews, the more chance there is that fraudulent activity could go undetected, and this could be a great cost to your business.

Finally, if regular management accounts are produced to a high standard, then the cost of producing your annual accounts may reduce as the management accounts would have flagged up any queries or issues that can then be resolved immediately, rather than at the year end.

In Summary

Although management accounts are not a mandatory requirement for a business, if you want to grow your company and continue to perform, then they are a necessity. Recent advances in accounting software means that management accounts can be tailored for the company’s specific needs and business owners should be actively involved in the information that is provided within the management account pack, as it is their actions that will drive the company forward.

All businesses should be setting themselves targets to which they should also be measured against and take actions when required. Simply, if you measure, you can improve.

 

At AJS Accountants Ltd, we can provide your business with a detailed management account pack on a monthly or quarterly basis and will work with you to achieve your growth plans. Contact us to discuss how we can work with you.

Categories: ,