The importance of management accounts

The importance of management accounts

Management accounts usually include profit and loss information, balance sheet, cash flow statement and a short report. You can put the accounts together yourself, but most businesses use accountants to produce them as they grow.

For continued growth, directors need to monitor and measure performance throughout the year. That means more than just the occasional glance at a bank balance.

A healthy bank balance doesn’t always mean a healthy company. Cash balance doesn’t consider cash flow, change in turnover, impending outgoings or any other future costs.

Management accounts – produced either quarterly, monthly or sometimes even weekly – reveal various trends. They give better and clearer information for planning growth and expansion.

Benefits of management accounts

Influencing decisions

When making choices regarding the future of your business, it’s important that you have the correct information to hand. Rather than wait until the end of year accounts, by regularly seeing trends in real-time, you can take action appropriately when making key financial decisions for your business.

Controlling cash flow

These accounts help you spot when money is going out of your business and give you warning about your outgoings. You need to know how and where your money is being spent and management accounts show you this.

Preventing problems

If fraud is taking place in your organisation you can sometimes be the last one to notice it. A regular review of finances means there’s no place to hide wrongdoing. The longer the time between financial account reporting, the more chance there is that fraud can go unspotted.

This could have huge detriment to your business. Also, the more often you produce management accounts, the less work needs to be done at year end, which means a lesser cost to your organisation on accounting fees in the long run.

Planning budgets

Budgeting helps bring financial figures and reality in sync – and this is easier with management accounts. You will be able to see how you performed against what you had planned, if profits are as expected and if mistakes happened, how can they be rectified?

Management accounts are different for every company. It’s not one-size-fits-all! For example, a large construction company does not need the same report as a small coffee shop.

As well as industry, your size, strategy/plan, and targets will also change what you need to see each time your accounts are produced.

One thing is for certain, though, they make a huge difference to the health of your organisation, and regularly monitoring your financial figures will massively help you as you build for the future.

We recommend Xero software to make management accounts easy to prepare and follow.

Ask us today about how we can help you with your management accounts.