The Value of Management Accounts
The value of Management accounts is often something that small business owners don’t understand and therefore don’t implement. Most small business owners are only interested in submitting their end of year accounts so that they can pay taxes.
A definition of management accounts can be found at the business dictionary website. Essentially management accounts are meant to provide information to business managers, helping them to make better day to day decisions. The objective in business is to increase profits and therefore increase returns to the owners.
How can management accounts help improve returns?
Managements accounts should be prepared monthly. At the very least they should contain a profit & loss account, a balance sheet and a cash flow statement. If you want to grow your business, preparing monthly management accounts will give you the real facts to help you move your business forward. You should view them as good practice for decision making. They should be prepared as soon as possible after the month end.
Reviewing your accounts every month gives you control over your costs and sales. You can clearly see what your spending your money on. This allows you to take corrective action and cut costs that don’t add value to increasing your sales or customer satisfaction. Doing this will improve cash flow and profits. Over a period of time your management accounts will show trends in your sales and costs, allowing you to plan for peaks and dips in advance. This information is invaluable for cash management and inventory control.
For example, for one of our clients we noticed that sales were constant throughout the year, to increase profit we looked at all areas to cut costs. Cutting costs was almost impossible to do without negatively affecting the business. The average price of each sale was £50, because sales were constant, we decided to increase the sales price by 2% or just £1. This price increase didn’t reduce units sold at all but had the affect of increasing profits by 10%.
The best way to maintain management accounts is to have an online accounting system such as QuickBooks, Sage or Xero.
Contact one of our team to see how we can help you improve your financial management systems, and help you move your business forward.