Business management accounts can help you answer questions about your business financials. They give a snapshot of your business’s performance at a certain point in time. They can tell you:
- How your business performed in the last month?
- Was its cash flow positive or negative?
- What was the net profit?
Although management accounts aren’t a legal requirement, they are so useful that they could be worth more to your business than the price you pay for them.
From manufacturers to service businesses, we prepare management accounts for many of our clients, who want to keep up to date with their financial figures on a monthly or quarterly basis.
We work closely with our clients to produce business management accounts. Members of our team can be onsite once or twice a month to meet members of staff and analyse the business’s financial records.
We also produce monthly management accounts for our own business, so we can track our performance and predict where problems are likely to arise.
Why are business management accounts important?
Management accounts help business owners to:
- Know exactly how their business is performing during the financial year (whether it is on target to meet annual forecasts, how its current performance compares with the same period of the previous year, etc)
- Make wise decisions based on concrete, up-to-date financial information
- Monitor, forecast and improve cash flow
- Monitor and adjust budgets
- Identify, monitor and respond to sales trends
- Control and reduce costs and overheads
- Plan for corporation tax and VAT payments
- Plan for pension funding and tax benefits based on up to date results
- Monitor growth in different areas of their businesses
- Assess their business’s strengths and weaknesses
- Detect fraud at the earliest opportunity
- Boost profit on the basis of an on-going, adjustable financial forecast that shows how the business will achieve its target annual profit.
Above all, business management accounts give you clarity. You can see exactly what is going on in your business and what is likely to happen in the next few months, allowing you to plan ahead.
For example, if the management accounts show that cash flow is likely to be negative when several annual bills are due in a few months’ time, you can plan for this by creating a cash buffer in a separate account and paying a certain amount of money into that account every week, fortnight or month.
Management accounts let you know exactly where you are in terms of your forecast net profit for the year. If you find out you’re not on target, you’re in a good position to make changes that will set you on a course to achieve your forecast profit by the end of the year. It’s always easier to make these changes before a small financial problem turns into a crisis and creates stress, which clouds your judgement and reduces your ability to make sound decisions.
What type of businesses & stages of a business are they useful for?
Management accounts are useful for all businesses but are particularly useful at the start-up stage when business owners and investors need to know how the business is progressing, month by month and quarter by quarter.
If you own an established business, management accounts are also beneficial, especially if your business has fluctuating margins or streams of revenue and/or is growing rapidly. Having your business’s exact financial situation in front of you gives you much better control and helps with tax planning.
You can, for example, plan how much to save for your business’s estimated VAT and corporation tax bills, varying this amount from month to month depending on seasonal sales, cash flow peaks and troughs, and other factors.
Management accounts are also very useful for businesses that are struggling. The up-to-date, accurate financial information allows owners to make adjustments that will steer their businesses towards future growth.
If you have a business loan, the bank may require business management accounts to be produced as part of the terms and conditions of that loan. If this is the case, your management accounts can also help you manage your business well and increase its profit.
What are the main advantages of management accounts over year-end accounts?
Year-end accounts are only produced once a year and are sometimes delivered months after the end of the financial year. This may mean that you only become aware of issues months after they happen, giving you little or no opportunity to react to small issues before they become more significant problems.
By contrast, business management accounts are produced more regularly and flag up issues early, so that you can respond to them in good time. They also allow much better planning particularly on the run-up to the year-end which is probably our most important meeting with you.
If management accounts have been prepared throughout the year, the process of producing year-end accounts is much more straightforward and quicker, because financial records are up to date, and all queries have been answered during the year.
We have a degree of objectivity and distance from your business which allows us to view its overall financial picture more clearly, to identify potential problems more easily, and suggest solutions to those problems that you can implement in a timely manner.
This is one of the key methods we use to add value to your business.
