What is management accounts?
Management accounts are financial reports (usually a Balance sheet, a profit and loss report and a view of cash flow) produced for the business owners and managers. This report can be prepared and presented every month, fortnight or week. In principal they are similar to the Yearend accounts but are less formal and personalised to the readers requirements.
Why is it beneficial for business to use them?
Some business are too small or too simple to require a detailed management accounts. It’s a matter of opinion but a business with a turnover of £100,000 would benefit from a set of management accounts.
Running a business without a set of management accounts is like driving a car in the dark. You know what speed you are doing – Sales but you don’t know your directions – The profitability and you cannot see any obstacles that may lie ahead – Cash flow/ shortage of cash.
Therefore the benefits of a business producing management accounts are:
- An overview of your cash flow and to avoid cash flow problems and manage liquidity
- Movement of money in and out of your business during any particular period
- Profit and Loss for a particular period
- To have a future visibility
- To determine which areas to focus in order to improve profitability
- Measure performance of your business
- Making more informed decision based on up to date information, rather than wait until year end to see your results
- Detect fraud in your business, regular review of your business means there is no place to hide for malpractice
In short, management accounting reports can benefit businesses in a multitude of ways. They can be used to help steer your company towards success, and avoid continuously making mistakes that cost you a lot of money by only looking at financial information retrospectively at the end of each year.
