What are Management Accounts and why do I need them?

What are management accounts?

Management accounts are simply a type of financial report providing an accurate and timely insight on the financial performance of your business. They are called ‘management’ accounts because that are used by business owners to make informed business decisions.

They are usually produced on a monthly or quarterly basis. They can be as brief as a summary on the income and expenses – giving a profit and loss amount, the company balance sheet at a snapshot, a list of the customers who owe you money and suppliers who you owe money to. Or they could even stretch to departmental reporting on profitability and commentary on the numbers. They’ll help you highlight what has gone well and what hasn’t, and whether you’re on track to meet the targets that you’ve set yourself.

Despite the standard layout in software or from some accountants, there really is no universal way of producing management accounts. Each set are unique to that business, depending on what information is important to you.

What’s the difference between management accounts and statutory accounts?

Statutory accounts cover a 12-month period and aren’t required to be submitted until 10 months after your year end. At this point, they provide no real value to a business. If it was down to me, these would be outlawed!

Statutory accounts are also produced for the purpose of complying with HMRC rules and to share with shareholders so they can see your spending. Whilst management accounts also use data from your income statement, cash flow statement and balance sheet, they use this information differently. This information is produced for you, not to tick a box for HMRC. Management accounts go beyond the numbers and provide key analysis into your business performance.

What are the benefits of management accounts?

Management accounts turn your financial data into analysis that you can make decisions upon. Some other benefits of management accounts include:

• Gain control of your cash flow

Management accounts can help you spot cash flow problems before they become a problem. You can clearly see the money going out and coming into your business so you can analyse where changes can be made to improve cash flow. For example, could you cut your outgoings? Could you secure a better deal with your suppliers? Do you need to change your terms to reduce your debtor days?

• Track your business growth

You can accurately monitor your business growth and spot where changes may need to be made.

• Aid business planning

Having regular management accounts means you can easily discover patterns in income and cash flow to help you plan. You may notice there are dips and seasonal trends you didn’t notice before that you can now plan for.

• Measure performance of departments or individuals in your business

Management accounts will help you define Key Performance Indicators (KPIs). By having regular KPIs, you can clearly see where the weaknesses are in your business and make informed decisions on what needs to change.

• Make more informed decisions

By having regular data on your business you the ability to make more informed decisions on accurate, up-to-date information instead of waiting until your year-end to see what’s going on in your business.

• Reduce your accounting costs

Regular management accounts reduce the amount of work that is required at your year end, therefore reducing our costs.

How can I use management accounts to access new funding?

How to access funding is an important question as a business owner. Whether it’s for business growth or to improve cash flow, having consistent, up-to-date management accounts is key to accessing funding.

Having regular management accounts can drastically improve your chance of success with obtaining finance from a bank or investor. Some lenders will also accept management accounts to provide extended credit terms, which can be useful if you have a low credit score.

It can also impact the interest rate you pay!

How are management accounts prepared? 

90% of the foundations of accurate management account should be produced by a good bookkeeper. The remaining 10% (perhaps the most valuable) needs to be completed by a qualified accountant. They will ensure the accounts are accurate and help you examine your financial statements. We can pull out data, spot patterns and red flags to aid you in decision making.

In an ideal world, this will be a collaboration with you too. Share your KPIs and business goals with us so we know what figures to concentrate on and help be your accountability buddy.