Management accounts are financial statements that contain information like your profit and loss account, a balance sheet, and a cash flow forecast. They are usually produced on a monthly or quarterly basis, but why are they important, and why should you have them prepared?
Let’s get the main challenge of management accounts out of the way first – they take up your time. Even if you get them prepared by your accountant, you still have to take time to read and digest the information. This can be difficult, particularly if you are already busy.
But the time that you spend analysing your management accounts will pay off in the medium and long term. They can help you make your business more profitable and more efficient. Here is how:
The first thing that management accounts give you is up-to-date information. When you have an accurate overview of your business today you can take better decisions for tomorrow.
For example, management accounts will help you see operating margins, or identify products that are selling slowly. You will be able to monitor sales volumes which will help you plan things like staffing levels more efficiently. And you will have more information to plan your stock levels to ensure you have enough to meet demand.
Management accounts also give you more control over your business. You will be able to identify trends in sales such as comparisons with the same trading period in previous years, or changes in volumes of particular products.
You will also have more control over your costs when you prepare and study management accounts. It is easy for costs to get out of control, particularly during busy trading periods, but management accounts give you an instant and easy to digest overview. With this information you will be able to identify areas where you can spend less, but get the same result.
Helps You Grow Your Business
When you are able to identify trends in sales quickly you will also have better information for planning growth, diversification or expansion. Without the information all you have is gut-feeling, and in business that can cost you dearly.
Improves Cash flow
Checking your bank account will tell you what is in your account today, but do you know what is going out of your account over the next number of weeks? Is the money that you expect in going to cover those outgoings? A cash flow forecast in your management accounts will give you this information. This will help you to avoid cash crises situations that can be distracting, costly, or worse.
Helps With Tax Planning
When you have accurate and current information on your business, you and your accountant will also be able to plan your tax liabilities better. Ultimately this could help to lower your tax bill.
Reduces Year End Audit and Accounting Costs
Finally your year-end accounting costs should be lower when you have a system that involves the regular preparation of management accounts. This is because your management accounts will flag up issues and queries that can be resolved immediately, rather than trying to do everything at the end of the year.
Understanding the financial position of your business is crucial to its success. To find out more about getting management accounts in your business you should contact Gilroy Gannon today.