The Value in Management Accounts

by | May 26, 2021 | Management Accounts

What exactly are management accounts and how do they help small business owners?

In summary, Management Accounts are financial reports produced for business owners and managers, on a monthly or quarterly basis. They generally include a Profit & Loss (P&L) report and a balance sheet, but they are tailored to the readers specific requirements.

Management Accounts provide business owners with the information needed to inform key decisions and to pursue their business objectives and growth in a constructive manner.

Do all business use Management Accounts?

Management Accounts are not compulsory in the way that Statutory Accounts are, which is the main reason that many businesses do not use them. However, they provide insight and information that Statutory Accounts, (often know as Year-End or Annual Accounts) do not. As a small business owner with any number of costs to consider, you may be reluctant to commit to accounting costs beyond the compulsory requirements for HMRC and Companies House. However, by skipping Management Accounts you could be missing out on significant information to guide your day-to-day and strategic decision making and ultimately improve your bank balance in the longer term.

What do Management Accounts show?

As Management Accounts are not legally required by HMRC or Companies House, there is no definitive structure that they should take. The format is instead, guided by the requirements of the business managers or owners and as such they can also cover whatever period is most appropriate.

However, you can usually expect to find the follows components in a series of Management Accounts:

  • A summary of the main findings, including Key Performance Indicators (KPIs)
  • A P&L account
  • A Balance sheet demonstrating the business’ net worth
  • An action plan suggesting measures which might be taken to address any issues

While Management Accounts usually focus on historical data, it may also be useful to include other aspects such as a budget and cashflow forecast.

The specifics of the report are completely dependent on the individual business. Some may take an in-depth analysis of particular products, locations or departments. They may include non-financial information such as sales volumes or productivity levels. External data and information might also be included, such as industry benchmarks or market conditions.

The Purpose of Management Accounts

In contrast to Statutory Accounts, which are delivered to meet the legal obligations to HMRC and Companies House (as well as shareholders), Management Accounts, as the name suggests are intended for the business managers.

So how exactly do they provide value for business owners. Here we have summarised just a handful of benefits to taken from Management Accounting:

  • key customers can be identified, including those that are the most profitable. This in turn can be used to refine sales, increase turnover and improve profit.
  • cash flow improvements can be made by reviewing customer and supplier payment terms
  • overhead savings can be identified, by highlighting areas of unnecessary spend
  • they identify trends to help understand direction of the business, in addition to highlighting seasonal or cyclical patterns
  • better tax planning (and dividend payments) due to improved confidence of when to make transactions
  • reduced Annual Accounting costs as many queries will have been resolved during the management accounts process
  • fraud detection – more regular monitoring of financial information improves the chances of detecting fraudulent activity sooner

There are of course many benefits and while some apply to larger businesses, otherwise are more relevant to smaller independent businesses. Getting the right structure and data in place for your management accounts can add endless value to the bottom line of your business.

Help with Management Accounts

At Kingston Burrowes, we can help you use your management accounts to understand your business better. By identifying the most suitable type of management accounts for your business type and size, we can help you to get the most out of them. Our friendly and experienced team will be happy to discuss your requirements and find the right solution to support your business. For more information on any aspect of Management Accounts, get in touch with the Kingston Burrowes team.

Other posts you might like:

Taxable Cryptocurrency Transactions

Taxable Cryptocurrency Transactions

It is crucial for individuals and businesses operating in the Cryptocurrency space to understand exactly which Cryptocurrency transactions are taxable. Whether it’s Cryptocurrency received as employment income, mining rewards, buying and selling tokens, exchanging Cryptocurrencies, using them for payments, or giving them as gifts, each transaction may have tax implications.

read more