A guide to management accounts

The purpose of management accounts is to show current financial information about your business, as well as other important data and KPIs. They provide an overview of a company’s financial stability and are integral to effective decision-making.

Keeping up-to-date management accounts is not required by law. They differ from the statutory year-end accounts which must be filed with HMRC and Companies House but in many ways are more important in the evolution of your business.

What are management accounts?

Management accounts are intended to offer business owners a comprehensive analysis of company performance and for strategic decision making.

Businesses choose to prepare management information internally or outsource to a firm of accountants depending on the size and capability of their internal finance function. Management accounts can be in the form of basic financial statements showing results and performance for a defined period or could be comprehensive depending on their purpose. Key Performance Indicators (KPIs) are also useful in understanding business performance beyond profitability and liquidity; KPIs are tailored to the nature of each business and set out its main business goals. For example, a property investment company will use rental yields as a KPI whilst a hotel will look at occupancy rates as a main indicator for measuring performance.

What are the benefits of management accounts?

Management accounts bring together a variety of your business’ data, helping you to achieve an enhanced level of understanding regarding your business’s performance. This can help business owners act on their company’s risks, highlight areas or branches of underperformance and continue aspects of the business’ operations which are proving successful.

Management accounts offer real time information, depending on the frequency in which they are being produced, aiding timely response to business issues and making more informed decisions.

The key benefits to management accounts are highlighted below.

Accelerating growth

Drawing up regular management accounts means you’re able to closely monitor business growth. You can then give heightened attention to aspects of your company’s activities which are working well, boosting profitability. At Gerald Edelman, we regularly attend Board Meetings of our clients and act as non-executive directors whereby we review management information and assist our clients in identifying areas of risk or opportunities.

Future-proofing your business

Management accounts can help you feel comfortable in taking big decisions for your business’ future. The information which you can include makes spotting patterns in income and cash flow simple. Armed with this data, you will be able to predict future levels of revenue and draw up informed plans of how to reach your objectives. Segmental reporting can highlight more weak areas of the business thus identifying resources which could be used more profitably elsewhere.

Closely monitoring costs

The more regular your management accounts, the closer you can track your business’ costs. Doing so can illuminate areas where you are allocating too much spending power, allowing you to reduce unnecessary expenses and boost profits.

Securing new funding

External agencies which will invest in your business and lend you funds always require you to offer them recent financial management accounts. This is so they can make informed decisions as to whether they should provide you with capital. Combining the information from management accounts with a business plan allows you to make the best possible case for securing investment.

Tax and dividend planning

Making the most of the tax benefits available to you is crucial to business success. Having current financial data at your disposal through a management account means that you can monitor your tax liabilities in confidence, maximise your use of tax benefits, and securely plan your dividend payments to come. Furthermore, as your business grows and evolves taxation requirements will change; by reviewing results on a regular basis you will ensure that you are keeping abreast with reporting requirements or registering for new taxes.

Need help with management accounts?

Preparing management accounts and implementing results can be a challenge. Whether you’re making them for the first time, or you’ve recently had a big leap in growth, bringing in external help can sometimes be the best move for your business.

At Gerald Edelman, we provide a comprehensive accounting and bookkeeping service to help you make the most out of the management account framework. Why not get in touch today and see how we can assist you?