What are the most valuable reports in your financial arsenal? The cash flow statement, balance sheet, profit and loss? While these are useful individually, they can be narrow in scope.
That’s why many companies choose to bring these reports together to create management accounts. A more in-depth overview of finances, management accounts can help you spot trends, issues, strengths and weaknesses.
They are also bespoke to your business. You choose what to include, from meaningful KPIs to standard financial reports. This helps you improve processes and make a financial plan fit for the future. Using data this way makes us up to three times more likely to make good decisions.
So, what exactly are they?
What are management accounts?
Management accounts use a range of forecasts, data and reports to make informed business decisions. They use past, present and future financial data to give you a well-rounded, overall look at your business’s financial health.
While individual financial statements tell you part of the story, management accounts bring them all together. They can be created internally or by your outsourced accountancy service. They’re not mandatory – and they don’t have to be filed with HMRC.
Limited companies, small business owners, accountants and management teams alike can benefit from producing management accounts. The in-depth view shows your financial health now and in the future – enabling informed strategic decisions.
How often should you prepare management accounts?
Instead of relying on annual accounts at year-end to make ongoing business decisions, management accounts can be a more regular tool. They’re best prepared at regular intervals; monthly management accounts might help in high-variance businesses, while quarterly works for many others.
Implementing regular management accounts can transform your business, especially when tailored to your business processes or needs.
What should be included in management accounts?
So, what should you include in your management accounts? There’s no one-size-fits-all answer – although many things will appear in most of them. Pick reports and statements that are meaningful to your business activities. Consider including:
Key performance indicators (KPIs)
Include the KPIs that matter to your business. Whether it’s profit margins, areas of performance, or by department, it should be something that impacts your decisions. This lets you focus on areas that make a difference and improve them if needed.
Cash flow statement
This is where your bookkeeping comes in. Use your cash flow statement to get an overview of your cash position. You should use past data to help inform decisions – it’ll give you insights into strengths, weaknesses, and seasonality in cash flow. Then, create cash flow forecasts to spot potentially tricky months ahead of time.
Profit and loss statement
Your profit and loss (P&L) statement gives you a snapshot of your profitability. Check your income statement to see how much you’re generating and get an overview of costs and expenses paid out. This will help identify any costs that are hindering progress and let you compare your situation over time.
Your balance sheet will also give you valuable financial information. You’ll get an idea of assets, liabilities, and debts – allowing you to see if all obligations are in hand.
What are the benefits of management accounts?
Collecting this information into management accounts brings various benefits.
1 – Monitor your finances closely
Instead of simply checking balances, your management accounts can give you a thorough idea of financial performance. It will help spot errors, look at any variance in cash flow, and identify potential issues before they happen.
2 – Timely decision-making
Then, you’ll be in a position to make informed judgments. You’ll be able to make timely, data-driven business planning decisions – instead of relying on gut-feeling or snapshots in time.
3 – Make budgets for the future
You can then make budgets for the future, not just the present. By planning for the long-term, you’ll avoid shocks from things like tax bills, cash flow variance and dividend payments.
4 – Improve efficiency
Use the insights from your management accounts to improve efficiency. This could mean many different things for different businesses – the crucial part is identifying it through your management accounts.
5 – Work with stakeholders and investors
Management accounts are also an excellent tool for stakeholders and investors. Regular management accounts can help justify business decisions and attract lenders when needed.
Make good business decisions
Up-to-date management accounts can change the way you see your business. By doing regular reviews, you’ll see trends and spot issues early – making better decisions that positively impact business performance.