from £180 + VAT per month
Management accounts are a financial report used by business owners for day-to-day as well as strategic decision making. They include a profit and loss account, balance sheet, cash flow statement and a short report, personalised to the user’s requirements. In brief, management accounts need only include what a board or management team need to see. The report should contain enough performance analysis and financial data so that investment decisions can be made in a well-informed manner by decision makers.
They are produced, usually, on a monthly or quarterly basis to provide insight into the current financial health of a business by tracking various key performance indicators.
Management accounts are not required by law and they do not have to be filed with HMRC, but they will put you more in control of your finances than ever before, supporting the growth of your business.
Most businesses have insufficient systems in place to know their true financial performance – if they did, then they would have a starting point, rather than just assumptions which are often wrong. For example, the business owners of a family owned restaurant chain with venues in three towns, when asked what the ranking of profitability was between the three restaurants, said they had no information in that regard. They put their heads together to estimate the ranking. In due course proper management accounts proved them completely wrong.
Usually a business measures its sales, knows its order book and might have an idea of the bank situation. But though it knows all that, it does not know its profitability or lack of it. It does not know which parts of the business are better than others. It does not know its overhead costs and does not compare performance month to month with previous years. In short, it’s woefully short of even basic financial information. Some businesses worry about this, others do not, but it stands to reason that if they had access to management accounts, the situation can be improved.
Lacking management accounts results in the business under-achieving profit or being taken by surprise by shortage of cash. Most businesses end up taking financial decisions in the dark and that may end in loss of money or even bankruptcy. Without sound financial information, the business is at risk of significant or serious underachievement in either profit or cash or both.
Another key effect of not having management accounts is the risk of over-trading: this means expanding sales too quickly so that the company runs out of cash or working capital. In short, customers may not have paid before the company has to pay its suppliers and staff demand their pay. This is a very common reason for businesses going bankrupt. Proper financial information would highlight this happening so that corrective action could be taken before it is too late.
To successfully grow your business, you need to be able to monitor your money and measure your performance throughout the year. Some of the benefits of having management accounts are:
If you are serious about improving your profitability, then you will ensure that you receive promptly, every month, the key information, both financial and non-financial, that you need to run your business effectively and efficiently.
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