Management Accounts Explained for Business Growth

Keeping tabs on your finances is a vital responsibility for almost every business owner. This, however, is not a simple task!

How do you stay on top of your finances when money comes in and goes out all year? Management accounts might come in handy for you!

Preparing management accounts, often called management information reports, provides valuable information for internal and external stakeholders. These reports are generated regularly, monthly or quarterly, for an in-depth examination of the company’s financial and operational performance.

Management accounts serve a more internal role and are distinct from the financial records sent out in April. So, what are management accounts? How can you integrate them into your company’s operations and strategies for the future?

Let’s check it out here, offering a clear insight into management accounts!

What are Management Accounts?

In the simplest sense, a management account is an internal financial report that a company uses to guide its decision-makers. It can be stakeholders, managers, and more. You should seek management accounts if you want assistance with your company's future planning and performance evaluation.

Does going into a new venture make sense while your finances are uncertain? Is your performance exceeding expectations? To ensure you aren’t making any hasty decisions, management accounts can help you figure out the answers!

Management Accounts: Who Needs Them?

Management accounts are far more adaptable than statutory or year-end accounts intended for investors, Companies House, and HMRC. Management accounts can compile financial statements for everyone with a substantial financial interest in the company’s success or failure. Everyone falls into this category, from company owners and shareholders to board members and investors.

Why Management Accounts?

Keeping tabs on your finances and progress throughout the year are crucial skills for any business owner looking to expand. This goes beyond simply passing glances at your bank account balance occasionally.

However, a solid bank account doesn’t always mean a reliable business. You can't use your cash balance as a forecasting tool since it doesn’t consider future expenses, market volatility, or the progress of your sales funnel.

All this crucial information is uncovered with management accounts!

Companies rely on management accounts because they let top executives react swiftly to opportunities and threats and make more informed choices. These reports provide the groundwork for sound, data-driven decision-making by including key financial and non-financial performance indicators.

The use of management accounts to guide company choices resulted in 28% quicker growth for SMEs compared to the market average, according to research by Accounts and Legal.

How Do Management Accounts Benefits You?

Track Your Progress: Your management accounts can be examined monthly or quarterly, allowing you to track your financial performance precisely. For instance, you can transform your clientele from chronic late payers into consistent, prompt payers by evaluating your accounts receivable over time.

Make a Long-Term Strategy: To predict future revenue better or deal with uncertain accounts, looking for trends in cash flow and income is helpful. Further, you can also identify slower months in terms of cash flow and adjust your plans accordingly.

Promote Funding: To reassure investors, your company strategy should include a solid set of management accounts. Instead of nervously approaching investors, you might come to them prepared to address their questions about your company’s success.

Improve Your Workflow: You can adjust your strategy accordingly if you know how much money is coming in and going out. For instance, if your customers are slow to pay, you might expedite credit choices or work on your collection process. Create loyalty programs and exciting incentives to reward loyal clients if you know how often they pay.

What are the Components of Management Accounts?

• The Balance Sheet
• Profit & Loss Statements
• The Cash Flow Statement
• Key Performance Indicators
• In-depth Analysis

A Handbook to Preparing Your Management Accounts

Following these broad guidelines can help you prepare your management accounts. Your company’s size and industry will determine the exact needs of your management accounts.

Financial Data Collection and Organisation

Gather relevant financial data, including income and sales, expenditures, and cash flow. You can find this information in your financial records, invoices, bank statements, and accounting software. Verify the data is accurate by comparing it with other sources of information; for example, compare your bank balance to the statements or ensure that your HMRC balance is what you see in your online account.

Get Your P&L Report Ready

You must calculate your company's income and expenditures to find your profit or loss at a given time. Computing accruals and work in progress can be necessary to allocate revenue and expenses to their respective accounting periods correctly.

This ensures you see the relevant data in that time frame, not depending on the date invoices are paid or sent out. Because expenses are closely related to sales at that time, you can be confident that the profit margins you use to make choices are correct. When making changes, you should also consider depreciation and an anticipated annual Corporation Tax.

Prepare Balance Sheet

Including its assets, liabilities, and equity, the balance sheet details your company’s financial condition and worth from its inception to a specific time. The primary purpose is to see the company’s debts and what it owes. Consider that an increase in debtors might suggest that the present credit management method is ineffective.

Create Cash Flow Statements

A cash flow statement is an excellent resource to understand better the ins and outs of your company’s cash flow and the effects of opportunities and threats.

Review Your Financial Records

Analyse your company’s financial performance and find ways to improve with the help of your management accounts. Try to make sense of the numbers by comparing them and looking for patterns. Ensure you get a complete company picture by adding non-financial facts.

Break Down the Findings

Share the findings from your management accounts with investors and shareholders. Gain a thorough understanding of the budget and be ready to explain the differences. Utilise the data in the reports to suggest ways to improve financial performance.

Management Accounts- Why They Are Not in Every Company?

Surprisingly, few companies use management accounts, although they benefit the company.

• This is due to a few common factors:
• An incomplete understanding of management accounts.
• Not enough time or money to thoroughly prepare for them.
• Assumption it is too complex or expensive for small businesses.

Management Accounts with Outbooks

Preparing efficient management accounts is difficult, but it pays you well in the long run!

Compelling management accounts- Planning, paying close attention to detail, and solid grasp of financial data are crucial.

Are you considering preparing management accounts for your business but unsure where to begin? You are in the right hands…

Outbooks will be your go-to solution for efficient management of accounts. Our seasoned experts know your business inside out to get a clear picture of your finances and provide you with a comprehensive report. Here at Outbooks, we offer a clear picture of your current situation and highlight any areas of unrealised growth potential.