Management Accounts are financial reports that are usually prepared monthly and which help small business owners to make important business decisions. They depict how your business is performing and give you the opportunity to make business decisions based upon that information.
All businesses can benefit from Management Accounts, regardless of their size or the products/services that they provide. Management Accounts normally comprise the Income Statement (also known as the Profit and Loss) and the Balance Sheet – topics of future articles on this blog. Your Bookkeeper will produce your Management Accounts for you once they have processed your business’s source documentation (client invoices, supplier invoices, bank statements, etc.) and entered it into a bookkeeping package, such as Pastel or QuickBooks.
Unlike annual accounts that deal with historical financial information, your Management Accounts allow you to control your business on a daily basis. In other words, Management Accounts allow you to manage your business pro-actively; you can quickly identify and resolve problems and spot opportunities.
Many small business owners are entrepreneurs and therefore they know a lot about the products and services that they offer their clients, but they tend to have little background knowledge of bookkeeping. If that sounds like you, I strongly recommend that you ensure that your Bookkeeper simply doesn’t just produce your Management Accounts. Make sure that they meet with you in order to highlight key information and trends contained within them – remember that your Bookkeeper is a powerful asset to your business!
- Know your company’s net value;
- Understand your business’s finances;
- Stay informed about the month-to-month financial situation of your business;
- Ability to make informed business decisions;
- Ability to plan and control your business’s finances;
- Discover problems early so that they can be managed;
- Identify opportunities quickly so that you may make the most of them;
- Control costs;
- The ability to quickly detect any financial fraud that may be happening;
- Reduction in your year-end accounting and auditing costs.
If you approach a bank or investor on behalf of your business with regards to an overdraft, a loan or an investment, you will need to provide them with financial information about your business. Your Management Accounts will provide this information, without which securing that additional finance will be very difficult.
If you wish to develop time-dependent strategies for your business, Management Accounts are an effective tool for you to measure them. It is pointless receiving financial information that is months out of date because it will not help you to make the decisions when you need to. However, up-to-date Management Accounts will enable you to make timely decisions with relevant financial information.
In summary, your Management Accounts should be an important instrument in managing your business. They allow you to make management decisions based upon actual financial information relating to your business. If you currently do not receive Management Accounts, your business will be suffering and you should approach a Bookkeeper to help you. What could be better than running your business without the financial nightmares that you currently have?
Please feel free to add your comments! Thanks. Ian Blackburn