What Are Management Accounts? & Why Do I Need Them?

Published: 13 Mar - 2019 by Ben Rendle

And why do I need them?

For small business owners, book-keeping and accounting falls under the category of ‘necessary evil’. It’s a job that has to be done (or most likely outsourced) to meet your legal obligations. However not all types of accounting are aimed at meeting your statutory obligations, some are designed to give you better information to help run and grow your business and this can have BIG benefits for SMEs.

Management accounts are a set of financial statements prepared either monthly or quarterly, which provide clear insight into the financial trading position of your business.

They aren’t required by law, and they don’t have to be filed with HMRC - but they’ll put you more in control of your finances than ever before, supporting the growth of your business.

What are management accounts?

Management accounts for small businesses typically include a profit and loss account, balance sheet, cash flow statement and a short report. You can put the accounts together yourself, or more realistically, an accountant can do it for you.

If you’re using a cloud accounting package like Xero, it’s easy to supply the necessary information to your accountant so they can produce the management accounts on your behalf.

 

Why do you need them?

 

To successfully grow your business, you need to be able to monitor your money and measure your performance throughout the year. That means more than just the occasional glimpse at your bank balance.

Indeed, a healthy bank balance doesn’t 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 accountslift the lid on all this information and when you are able to identify trends in sales quickly you will also have better information for planning growth, diversification or expansion. Without the information all you have is gut-feeling, and in business that can cost you dearly.


This means you can…

 

Grow Your Business

 

When you are able to identify trends in sales quickly you will also have better information for planning growth, diversification or expansion. Without the information all you have is gut-feeling, and in business that can cost you dearly.


Other benefits of management accounts include:

 

• Making more informed decisions based on up-to-date info

Rather than wait until the year end to see your results, you’ll be able to identify adverse operating trends in real-time, and take action to correct the situation.

• Measure performance of your business and individuals

Management accounts provide the basis for reporting key performance indicators. KPI’s are an invaluable tool if reported regularly, and in a timely manner.


• Gain control over your cash flow

Management accounts help you spot cash-flow problems before they happen, and help you analyse the money going out of your business. Could you cut your outgoings? Are you getting good value from your suppliers? Total business costs are of little value when managing a business - you need to know how and where that money is being spent.

• Plan your tax and dividend payments

With up-to-date information available each month, you can plan tax and dividend transactions with greater confidence. Management accounts for small businesses can help maximise the potential benefits of paying dividends rather than salary.

• Detect fraud in your business

A regular review of your business finances means there’s no place to hide for malpractice. The longer the time between financial reviews, the more chance there is that fraudulent activity could go undetected - at great cost to your business.

• Reduce annual accounting costs

Having regular management accounts produced reduces the amount of work required at year end. normally reducing the cost of producing your annual accounts.

In summary

These are just some of the benefits of management accounts for small businesses. From reduced accounting costs to lower tax liability and even a better relationship with your bank manager, there are plenty more advantages to discover. For the bigger picture, contact BR Accounting & Business Services Ltdfor your no obligation meeting.

Who we are.

BR Accounting & Business Services Ltdare a firm of Management Accountants based in Plymouth, Devon. We are specialists in the field of Management Accounting, with a range of services designed to assist SME business owners to harness their financial data in order to grow their business.

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