Management accounts

What Are Management Accounts, and Why do You Need Them?

Management accounts are monthly or quarterly financial reports.

You might think your business is too small to worry about such things, but if you don’t have them, it’s a bit like driving in the dark without your lights on – you won’t see obstacles until you hit them head-on.

Knowing your order book, how your sales are doing and what you’ve got in the bank is one thing, but without management accounts, you don’t know your profitability (or lack of), which parts of your business are performing well, and which aren’t and there’s no way of comparing how you’re doing month on month.

Management accounts will help you:

  • Measure past performance and improve on it
  • Avoid cash flow issues and manage liquidity
  • Have future visibility
  • Work out where to focus your attention to improve profitability

The benefits of management accounts

Monitor growth

Monthly reports will help you monitor your financial growth and performance. It will help you understand your client base, helping you develop from late-payers to on-time payers.

Informed decisions for future growth

Real-time information will help you identify income and cash flow patterns, helping you accurately forecast your future revenue. It may also help you spot seasonal differences in cash flow to plan around slower months in the future.

Easier funding

If you’re looking for funding, a good set of management accounts will help investors understand your business plans. It will help you answer their questions with confidence and become investable.

Understand cash flow and optimise processes

You can find problems before they happen when you understand your cash flow. They will help you streamline your outgoings and get good value from your suppliers.

Detect fraud

No one likes to think they could fall victim to fraud, but it happens. Regularly reviewing your business finances will help you spot any potential issues before they get out of hand.

What should be in my management accounts?

The goal is to produce only the most relevant and valuable information for your business and keep it focused, specific and to the point.

To give you an overview, a strong set of management accounts would include:

  • Key performance indicators (KPIs)

    These are the measurable goals you want to achieve within a specific timeframe. They can be financial goals (e.g., revenue growth, gross profit margin etc.) or performance-based (e.g., number of sales leads you want to achieve.)

  • Profit and loss

    This helps you compare your income monthly to see if you’re regularly over or underspending. You can see the departments or branches of your business that are performing the best and helps you compare your actuals to your forecasts.

  • Cash position

    Understanding your cash flow is vital for daily budgeting, investment, and funding decisions. Although your cash flow statement gives you a summary of the cash coming in and going out of your company, your management accounts use the data to also identify patterns.

    Understanding these patterns helps you better forecast for the future.

  • Balance sheet

    Your balance sheet gives an overview of your net worth, but your management accounts will help you look for deeper insights. For example, how quickly do you turn assets into revenue, and how well do you generate returns on investment?

The final word

To successfully grow your business, you need to monitor your money and measure your performance throughout the year. A healthy bank balance doesn’t always indicate a healthy business because it just shows a snapshot in time.

If you’re serious about improving your profitability, find a reliable bookkeeper who can support to you to provide the information that will feed into your management accounts. Then you’ll ensure that you receive the prompt key financial and non-financial information that you need to run your business effectively and efficiently.

Time wise VA works with small- to medium-size businesses to make their working day that little bit easier. Call the team on 0161 211 9837.

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