A lot of business owners tend to think of their accounts as a tedious but necessary data-collection exercise.
They might offer some financial oversight, but ultimately, the accounts need to be done in line with the standards set by HMRC and Companies House, in time for the annual deadline.
Management accounts are a little different, however. Compared to bookkeeping, which is about collecting and organising past information, they let you turn that raw data into insights for your business’s future.
What are management accounts?
Management accounts are a type of financial report, usually produced on a monthly or quarterly basis.
Like your statutory annual accounts, they contain financial information based on the records you’ve kept over time, to show how your business is performing. This might include important documents like your profit and loss statement, cashflow statement, and balance sheet.
But unlike those accounts, there’s no legal requirement to produce management accounts, and no standard format to follow. Instead, you have the freedom to shape them according to the information that’s most useful to your business.
They’re produced for the benefit of business owners and managers, to help them strategise and make informed decisions, but they can also be used as evidence for investors or bank managers if your business is seeking funding.
What’s included in management accounts?
This really depends on what your business needs, but your management accounts could provide information based on:
- Profit and loss accounts, showing you whether you’re operating at a profit or loss for a given period. In your management accounts, you might choose to compare this month-on-month, or look at different departments’ performance.
- Cashflow statements and forecasts, to help you identify any patterns and plan for any expected fluctuations in cashflow.
- Your balance sheet, giving you an overview of your assets, liabilities and equity. Management accounts can dig deeper and look at how this changes over time.
- Key performance indicators (KPIs), the measures used to track your progress towards specific business goals. In your management accounts, you can see how these match up with the financial figures and whether you’re on track.
How to prepare management accounts
As we mentioned, there are no compulsory requirements for the information you include in your management accounts. So how do you go about putting them together?
To start with, you need an effective bookkeeping and accounting system – for our clients, that’s covered by cloud accounting software.
Then, to determine what you need to include, think about your business goals.
Are you just starting out in business, and in need of some direction without being overwhelmed by detail?
Are you going through a period of growth, and looking to show investors your business is a safe bet?
Do you want to improve your processes, set a budget, or get better oversight on different departments or divisions?
A good accountant or outsourced finance director will be able to take the information collected via digital bookkeeping, and use it to produce management accounts that are both informative and concise.
As your business needs change over time, they’ll be able to adapt your management accounts with relevant analysis, to keep you and your team focused on the future.
Talk to us to find out how your business could benefit from management accounts.
