Management Accounts (and why you need them to grow your business)
Most business owners can apply themselves to running basic accounts and tax returns. You’re an entrepreneur after-all, you’re not afraid of a learning curve and a few late nights. However, management accounts are a whole different ball game and they can really make the difference between a business that pootles along and one that grows. There’s nothing wrong with wanting to pootle along, of course, but if you’re interested in business growth, read on…
Management Accounts – A brief explanation
Management accounts are internal accounts, produced as frequently as you require (though usually monthly or quarterly) that provide evidence of your business’s performance based on real data. Without them, you can’t make informed decisions like;
- whether a client is actually profitable,
- whether your costing accurately reflects the resources you have spent or
- when it’s time to expand your workforce.
Doesn’t my end of year accounts do that?
No. End of year accounts are a representation of historical performance, often produced months after the end of the year. Management accounts are more timely – typically produced within a week or two of the end of the month or quarter. Ideally they include a forward looking element, aimed at helping you clarify the steps you need to take to achieve your goals.
Can I do them myself?
You can, but it’s more likely to happen (and be a successful exercise) if you engage your accountant to run them for you and provide a report explaining them. Your accountant can bring invaluable insight into the meanings of the numbers, dangers they indicate and how best to use the data to grow your business. If you are using cloud software, such as Xero, most of the information they need will be easily accessible to them, meaning you have very little legwork to do .
What should Management Accounts include?
Management Accounts vary from business to business, depending on the main areas you need to track. They would typically include the traditional accounting reports such as:
Your Balance Sheet
Income and expenditure statement
However, to get the maximum benefit, you need to look at the main things that drive your business towards achieving its goals. Also known as KPIs (Key Predictive Indicators), this could include things like customer satisfaction, new business won, team productivity, lead conversion rate. It’s a whole different topic that deserves a blog of its own.
Why do I need them?
There are many reasons Management Accounts will be useful to your business.
- Most importantly they will bring clarity to how healthy your business is by revealing patterns month to month of your costs, sales and performance. Allowing you to make informed decisions at the right time.
- If you need funding, management accounts will provide the kind of detailed information a bank or investor will require. Equally, this also applies to selling your business on.
- Management Accounts will help you spot problems in your cashflow before it happens and gives you time to adjust your behaviour accordingly.
- Monthly or quarterly focus on team and project performance. Enabling you to indicate the kinds of jobs that are profitable for your business and motivating for your team.
There’s no legal requirement to have Management Accounts. However, they will give you a greater insight into your business and empower you to make better decisions.
Contact us if you would like to know more about Management Accounts and how they would work for your business.
And for our lovely clients – we are offering FREE management accounts, monthly or quarterly, to any client who keeps Xero fully reconciled.
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