The mysterious concept of management accounts
If you’ve been reading my blogs regularly, you will know that I’ve been advocating the importance of bringing light to your business finances. Achieved through the power of performance information, it needs to timely, frequent, regular and accurate! If you’re already beginning to gather all this vital performance information, your next question is probably going to be, ‘What format should this information take?’
Introducing the mysterious concept of management accounts!
What are management accounts?
A bit like a diagnostics system, management accounts help business owners see everything that’s going on in their business. They analyse the performance of your business and help you make the right decisions in the future.
How are they different from financial accounts?
The financial accounts of your business are published publicly with Companies House and submitting them ensures good business hygiene. However, financial accounts are not designed not to help you as the business owner. Instead, they provide third parties (customers, suppliers and lenders etc.) with a view of your organisation’s viability and stability.
How do management accounts work?
The great thing about management accounts is that you as the business owner have flexibility. The opportunity dictate what information needs to be included in them and how they need to be presented in order to provide you with the all-important keys to the safe!
My main piece of advice would be to keep them simple when you first start and then build complexity in later. For all our clients at E.H. Taylors, we provide the following as part of their management accounts:
- Management accounts every quarter
- Delivered within one month of the quarter-end
- Presented in a simple, uncluttered format
- A meeting once per quarter to review the management accounts
Why does a business need management accounts?
Some of you might be thinking that management accounts are as simple as printing off a profit & loss report from your accounting system.
You could look at it this way, but unfortunately, calculating profit is rarely as simple as “money in” minus “money out”. A simple scenario like this doesn’t exist for businesses because there are always lots of complications. Accounting adjustments are almost always required for management accounts in real-life situations for a host of reasons.
So you see, while the presentation of management accounts needs to be simple and uncluttered, the act of preparing them can get complicated pretty quickly – which explains why accountants go through years of professional training to ensure they can account for all of the different scenarios.
Utilising the power of management accounts provides business owners with the potential to make a material difference to their organisation’s success and profitability. Without management accounts your decisions are pretty much outright gambles. But with management accounts your decisions will be calculated risks.
If you would like to learn more about the mysterious concept of management accounts and see some real-life examples, download a copy of my book The Keys To The Safe.
Antony Holdsworth BSc (Hons) FCMA CGMA