Business growth is difficult to get right, especially when you’re constantly distracted by the day-to-day activities you need to focus your attention on just to stay afloat.
You can’t grow your business without a plan, and you can’t create a plan without facts, figures and data.
That’s where management accounts come in. While they are not compulsory, they’re powerful tools you need at your disposal if you want to get the important business decisions right.
Here’s what they are and why your business should use them.
What are management accounts?
Management accounts are financial reports produced for business owners and managers, by a financial expert or accountant, usually every month and/or quarter.
The aim of a management account is to provide insight on the financial performance of a business in real time and to assist in strategic decision making.
As they are not compulsory, there is no one way that management accounts have to be drawn up and presented, or one set of information they have to include.
That’s actually a benefit, as each set of management accounts will be unique to your business – why include something irrelevant to you or use a format you can’t get your head around?
Benefits of keeping management accounts
Although you’re not obligated to keep management accounts, we recommend that you do. We’ve worked with countless clients and can say with confidence the most ambitious business owners have grown their organisation in part thanks to management accounts.
They provide an accurate method to regularly monitor your growth so you can ensure you’re performing well, however performing well looks for you.
Monthly and quarterly management accounts don’t just help you understand the here and now, however, but they also help prepare you for the future. For instance, looking for patterns in income and cashflow means you can more accurately forecast your revenue and put money aside for a rainy day.
You might also spot seasonal differences in cashflow to help you plan for slower months in future. Would you have spotted these without management accounts?
If you’re looking to optimise your processes and make your business activities more efficient, management accounts are a must.
Take cashflow again. If you realise clients are taking a while to pay, you’ll know you need to find a solution to get them paying on time so you can get hold of the money you need to grow.
What to include in your management accounts
As we mentioned, management accounts are completely bespoke to your business, so you can include only what you want or need.
However, a strong set of management accounts will include certain components.
First, you should always include key performance indicators (KPIs), which are a list of measurable goals you want to achieve within a specific timeframe, whether financial or performance-based.
Once you get your latest management account, compare the numbers to your KPIs to see if your growth plan is on track. See where you’re doing well and look for areas of improvement.
You should also include your monthly income so you can see if you’re regularly over or under spending. Break down profitability by department to see which are performing best and if you need to make adjustments.
Be sure to include cashflow patterns in detail. Cash is king and with an understanding of how money is flowing in and out of your business, you will make better decisions.
Mayflower management accounts
It takes time and effort to create regular management accounts that will really assist you on your journey.
At Mayflower Accountancy, we can help you create yours and will ensure the numbers make sense to you.
We’ll examine your financial statements and pull out data, patterns or red flags that will make sure you make the right decisions.
We’ve done this countless times and understand the value of management accounts.
Contact us to learn more about our account management service.