What are management accounts and why do you need them?

Management accounts are a useful tool for businesses to get a real sense of how to develop your company.

By looking at your finances and also at larger trends within your business, and the risks that you could be open to in the near future, you gain a strategic insight into the direction you should take your company to ensure growth.

More than simply “balancing the books” management accounts offer a comprehensive overview that supports your business and allows you to make intelligent, informed decisions about your company.

What are management accounts?

Flexible and tailored to your company’s specific needs, management accounts are a great way to gauge the effectiveness of your current business strategies and alter them if necessary, based on informed, data-driven insights.

They are internal documents only, and will not be shared with shareholders or regulatory bodies; instead, management accounts are used by business leaders to flexibly manage the company.

Unlike a Year End account which is a formal document with a legal format to follow, management accounts are much more personalised and overall, much more in-depth covering various aspects of your business. Annual financial statements are still important, but nothing will beat management accounts for giving you immediate actionable data to change course with your company if things aren’t going as well as they should be.

A typical management account includes:

• Cash flow statement – A document outlining the cash going in and out of your business. It usually comprises three main sections: operations, financing, and investments. This way you get a breakdown of the cashflows in important areas of your business and can see if there is too much, or too little, expenditure in any part of it.
• Key performance indicators – KPIs are metrics set by a business to track and monitor performance in key areas. These can include customer retention rates, sales performance, profit margin, and employee performance. They are decided by the business owners and should be whichever metrics will prove most useful to track for your specific industry.
• Budget and forecasts – A comparison between the forecasted performance and the actual figures of your business. See how well you expected to do versus how successful you actually are; if there is a large discrepancy, it will be worth further investigation.
• Balance sheets – A great way to gain a snapshot of your business’s financial position. These statements show what your company owns, what it owes, and the remaining value that belongs to the owners, in short, the assets, liabilities, and equity. A balance sheet is especially useful to evaluate your company’s ability to repay loans.
• Profit and loss statement – Summarises the value of your company, showing the income and expenses over a certain period of time. These statements will list the revenue, expenses, and gross profit of your business. It is another great tool to help you track the financial performance of your business and can even be used to help prepare financial reports for investors and other stakeholders.

Why you need management accounts

Management accounts provide a detailed and frequent understanding of your business’s financial health. They encompass a range of extremely useful insights pulled from all the financial data of your company.

In business, you need to make as many informed decisions as you can. There is no crystal ball that will allow you to see into the future (unfortunately), so it’s best to try and put things as much in your favour as possible. One of the most meaningful ways we can do this is with data and using that data to make the best decisions possible.

Rather than wait until your annual financial statement to find out whether your strategies have paid off, you can generate management accounts throughout the year to give you a focused and highly detailed image of the health of your business.

By measuring your business performance, you can improve it while navigating any obstacles that threaten to block your path.

Some of the benefits of management accounts include:

• Regular tracking of income
• Insight into financial health
• The accuracy of business forecasts
• The success of investments
• Preparation for future expansion opportunities
• Spotting trends in stock and revenue expenditure

With these accounts collated on a monthly or quarterly basis, you are taking a proactive step toward ensuring the successful future of your business.

How CTT Accountancy can help your business with management accounts

We have an enormous amount of experience in preparing management accounts and our services don’t stop at delivering the documentation.

When you work with CTT Accountancy you gain a valuable partner, capable of collaborating with you to develop a deep understanding of the data and what it means for your business, which then leads to more informed decisions and hopefully, increased revenue.

By getting to know you, your aspirations, business goals, and where you want to position your company, we supply valuable advice that moves you toward success. Management accounts are a fantastic tool to help us do this.

Conclusion

Timely reporting makes a real difference to your bottom line. Informed, data-driven decisions beat intuitive “best guesses” every time.

If you think your business could benefit from management accounts, get in contact with CTT accountancy; we’ll discover the best ways to improve your business and optimise your processes to help increase your revenue.