Do you want to be in greater control of your business? Make decisions based on facts such as when you typically increase sales and, therefore, need to employ more sales people or to change tack and boost your marketing spend in a particular sector, for instance. The answer is a set of accounts that is not required by law and does not have to be filed with HMRC – known as management accounts, these are numbers that give you a true picture of your business and will put you in greater control of your business than ever before.
What are management accounts?
Management accounts are a set of financial statements that can be prepared at any time but we recommend they are created either monthly or quarterly. They provide clear insight into the financial trading position of your business.
Typically including a profit and loss account, balance sheet, cash flow statement and a short report, they provide the valuable information about your company and its performance you need to allow you to make better decisions and plan for the future. When you and your accountant really understand both the opportunities and areas for concern, you can dynamically address both and profit accordingly.
Here are 7 ways that regular reviews of up-to-date management accounts will support your business.
1. Control costs – preparing and reviewing a set of management accounts regularly makes it very easy to compare costs month by month. By analysing this level of detail, it’s possible to find opportunities to cut costs and to spot mistakes such as overcharges.
2. Mitigate cash flow problems – Cash in the bank can give a false sense of security; your customers may have paid up front but there suppliers and employees are still waiting to be paid. Reviewing a set of management accounts will show your exact financial picture and make it easy to identify problems so you can reduce costs or find interim funding before a problem becomes critical.
3. React to changes in the market – When you integrate budgets and forecasts into your management accounts, you can easily see where your actual performance differs from your predictions. Think of these accounts as a visual aid to easily see the specific causes of any variances and take action quickly!
4. Avoid surprises at year end – You may have a good idea of your total sales and costs, but it can be difficult to monitor exceptional costs or one-off projects, accruals and depreciation. Avoid nasty shocks and benefit from knowing about pleasing increases in profit so you can plan for extra dividend payments or increased corporation tax bills!
5. Boost motivation – When key members of staff can easily see the reason why they need to reduce costs or increase sales, they are more likely to act. You do not need to show the whole set of accounts, just those that are applicable to that team member.
6. Useful for raising finance – If you need to raise finance, a good business plan backed up by detailed and up-to-date management accounts (rather than your annual accounts that could be nearly 12 months old) you can improve your chances of success. You can also share them with suppliers if you want to obtain credit.
7. Dividends – Dividends can only be taken when a company has distributable reserves. It’s important to carefully monitor to ensure that directors extract the optimum level within the legal parameter. Knowing your exact financial position helps you to do this.
When you can benefit from the up-to-date information in your management accounts and move ahead of your competitors, then the benefits far outweigh the cost to prepare them and the time taken to review the information. If you’d like to discuss how regular reviews of your management accounts will help your business, contact Catherine Hill or call 01992 444466 – we would only be too pleased to help.
HB Accountants are here to help: giving you access to experienced accountants and useful information and support no matter your business size or sector. If you would like a no obligation discussion about how we can help you and your business, please feel free to contact the team on 01992 444466. We’re accountants for business and we’re here to help you grow.
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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above
