If you own a business, you likely have plenty to consider – and your accounts and bookkeeping should be high up in your list of priorities.
This is the case regardless of the size of your business – whether you own a large limited company or a small business that’s just starting out.
If you want to measure the financial health of your business, whether it be by sales or profitability, management accounts are a great way to start.
But what exactly are management accounts? Why are they prepared? Read on to learn more about management accounts.
What Are Management Accounts?
Business management accounts, also known as cost accounting or managerial accounting, are financial reports that give business owners and managers an insight into the financial health of the business.
Management accounts usually consist of financial reports that allow you to understand the state of your company’s finances, allowing you to plan accordingly and consider the future of the business. Without management accounts, you may struggle to plan effectively for the future.
This is achieved by tracking KPIs (Key Performance Indicators). However, the KPIs can vary depending on the type of business and what you want to achieve from the report. Typically, management accounts are produced every month or on a quarterly basis – but again, this can vary depending on the business.
They share similarities with the year-end accounts, but you can personalise the accounts – and they aren’t typically dictated by your standard accounting principles.
Management accounts are typically utilised when managing finances and expanding business operations – and are often referred to when making business decisions, agents, plans, and meeting targets.
What Should I Include In Management Accounts?
Management accounts for business can include what you need to see – they can be tailored to your business operations and strategy. However, reports should be thorough and contain enough information to aid with decision making further down the line – e.g, investment decisions.
A typical management account template will include a set of key performance indicators, the cash position, balance sheet, and a profit and loss statement. The set of summarised accounting data will include data regarding cash flow and income – and are typically presented on a monthly or quarterly basis.
Typically, the aim of management accounts will be to budget and lower costs, but every business is different – so your regular management accounts should reflect this, and be personalised. Highlight areas that you feel need to be recorded or improved in your business, as this will allow you to set and achieve the right targets.
You can produce your accounts using a variety of systems, whether it be Xero, Sage, or Excel. Excel is a flexible option and many people have more familiarity with the program. Always check that the chart contains all the right information without unnecessary duplicates.
Why Prepare Management Accounts?
Regular management accounts give you an insight into the state of your business’s finances and can help you gain clarity when deciding what goals to set for your business, and what direction you want your business to go in.
There are a variety of ways that management accounts can help your business – as the information that you plan on acquiring from your management accounts can give you an insight as to how different parts of your business have been performing.
A quality management account system enables you to use KPIs to give you an accurate insight into your business – for example, your gross profit and overhead costs. This makes things easier when it comes to the end of year accounts, and can even reduce the accountants’ costs.
It can also highlight any areas of improvement and bad practices, allowing you to take action and impose discipline in necessary areas. You can control debtors, stock levels, and overhead costs with the information received from management accounts.
At LJS Accounting Services, we can help with the annual preparation of budgets to keep track of your business’s profits and expenses. If you’re based in or around the Liverpool area and want someone to manage your accounts, contact us today for a free consultation.