The importance of management accounts

Management accounts vary significantly from business to business and should be personalised for the needs of the stakeholders.

Effective management accounts can help to provide information that can support important business decisions and they can be useful to help gain control of your finances and support the growth of your business.

Not all businesses need management accounts, it can depend on the circumstances. At Langricks, we have several clients that have created very successful businesses without timely, monthly management accounts and they are not for everyone.

That said, management accounts and a robust forecast be really valuable when:

• Presenting a business for sale and underpinning the assumptions within financial projections.
• Maximising ‘free cash’ and negotiating working capital requirements as part of a sale.
• Pushing a business forward – with a clear goal and strategy, management accounts can help you track performance against plan. Having a target number of items to sell can help a business focus a sales team in hitting that target.

The key benefits of management accounts include:

• Make decisions based on the latest information – regular financial reviews can help identify adverse operating trends in real time, rather than wait until the end of the year. This gives you the opportunity to take action right away.
• Measure performance of your business and individuals – management accounts provide the basis for reporting key performance indicators. KPIs are a key tool if reported regularly and appropriately as can be unique to each business and tracked.
• Gain control over your cash flow management – spot cash flow problems before they happen and analyse the money going out of your business. Total business costs are of little value when managing a business – you need to know how and where the money is being spent.
• Help to plan tax and dividend payments – with up-to-date information available each month, you can plan tax and dividend transactions confidently.
• Identify fraud in your business – regular reviews of your business finances can help to identify any malpractice going on. The longer the gap between financial reviews, the more chance of fraudulent activity going undetected.
• Reduce annual accounting costs – frequent management accounts can reduce the amount of work required at year end, generally reducing the cost of producing your annual accounts.

Get in touch to see how Langricks can help with your management accounts.