Getting more from management accounts.
As a business owner, it goes without saying it’s vital to always be on top of the company’s finances. You’ll always need to know how the business is performing, but also how it is projected to do in the upcoming months. Running a business also means making important decisions daily, so it’s always better to do so while having accurate financial information at your fingertips.
As year-end accounts don’t provide owners with constant, up-to-date financial information monthly, it could be argued that the benefits are limited. Past information doesn’t give a good guide to current business performance or the trading outlook.
If you find yourself frequently coming across uncertainties as to how your business is really doing throughout the year, perhaps you are missing out on management accounts.
What Do Management Accounts Include?
Typically produced on a monthly or quarterly basis, management accounts include key performance indicators, profit & loss statement, the cash position and balance sheet. So what are the benefits of management accounts, and how can they be useful for day-to-day, strategic decision-making?
Valuable for Cashflow and Planning
A healthy bank balance can give a false sense of security, as it doesn’t always mean a healthy company. A cash balance is only displaying a fixed point in time – it doesn’t indicate what customers owe you, how much you owe creditors and other impending monthly movements of figures.
But monthly accounts tracking key financial data and analysing expenditure can identify any gaps in funding quickly. Debtor information and a cashflow forecast show a real-time, in-depth overview of cash coming in and where the company’s money is being spent.
Armed with this information, you can effectively plan based on real numbers and are equipped with the facts to swiftly switch direction on a monthly basis, if you spot any cash flow problems.
A Regular Snapshot of the Current Financial Health of Your Business
Management accounts allow you to see at a glance how your business is performing, on a frequent basis. Without these numbers, it’s pretty difficult to accurately monitor the financial health of your business and make informed decisions to move it forward.
The numbers will also clearly indicate the profits that are available for withdrawal as a dividend (and help to avoid accidentally taking too much, resulting in paying interest or additional tax).
Gaining More Control of Costs and Guiding Growth
Usually, business owners will have some idea of how they’re doing, but it can be difficult to monitor varying margins, one-off projects and other costs.
If you’re a small, one-person operation, monthly accounts might be overkill. But even if you don’t require monthly information, checking up on your management accounts on a quarterly basis means that you’ll know if you’re going in the right direction, and gain more control over what’s happening with your business.
When things are going as planned (or even better) access to real-time financial information can show what’s driving the business in the right direction, so it can be replicated.
On the flip side, it provides instant feedback on what doesn’t work. It’s better to find out what went wrong financially and take action early on than find out the business is facing difficulties, or stumbling across unexpected losses at the end of the year.
Sudden expansion can also increase risk exposure. If your business is rapidly growing, robust management accounts are the essential starting point for putting the reporting systems in place to track changes, so you can make meaningful plans for future success.
A chance to work ‘on’ the business (rather than just ‘in’ it)
It’s not uncommon to get caught up in the day-to-day running of a business, and occasionally overlook some of the core areas make an impact on the company.
Management accounts include what the board needs to see, providing the perfect opportunity for business management teams to take a step back monthly, discuss performance and address any underlying problems.
Frequent use and understanding of management accounts help management to control costs, improve margins, boost cash flow and mitigate risk through better credit management. This way you’ll know if the best action is really being taken, and get in a much stronger position for the year-end.
Looking for More Visibility From Your Numbers?
In these difficult and unpredictable economic times, it could be argued that management accounts are more important than ever.
Management accounts don’t have to just be a box-ticking exercise. The benefits of having a firm grasp of knowing your business inside and out are invaluable, and accurate accounts provide a key tool for much-needed visibility to see what’s really going on.
Sound useful? At TS Partners, we create bespoke detailed or summarised management accounts reporting packages monthly or quarterly, tailored to what’s best suited to support the running and success of your business.
We’re experienced at presenting key financial information in a way our clients understand, so they can know their business better. Click here for more information on our outsourcing services, get in touch with our team today.