What are management accounts and why are they vitally important for every business?
Management accounts, ideally produced monthly, are the reports that tell you how your business is performing.
Typically they include:
These are basic reports that will fall out of your accounting software, such as FreeAgent, Xero or QuickBooks.
The first two reports are telling you if you’re making a profit or a loss. They offer comparisons with last year and against your budget if have one.
Looking month by month tells you about growth and seasonality.
They both tell you if you’re missing something.
The balance sheet speaks to financial strength. It’s a list of assets (e.g. cash, debtors, stock) and liabilities (e.g. creditors, loans, taxes) and you need your assets to be greater than your liabilities to be a solvent business.
Aged debtors is a list of who owes you money and since when – vital for credit control
Aged creditors is a list of who you owe money to and how old these liabilities are.
Not having management accounts is simply not an option and yet we continue to see companies, some with multi-million turnovers, that have nothing like the management information they need to run their businesses.
Sounds familiar?
Organise a management accounts makeover.
Your MONTHLY management accounts should include as a bare minimum:
Plus any further analysis, such as profit by client, profit by service / product that is relevant to your business.
And, if you are concerned about cashflow – you need to be reviewing a cashflow model!
If you have the wrong information you will make the wrong decisions and probably think you are richer than you really are.
So make sure your bookkeeping is complete and accurate.
Some numbers in the management accounts are estimates, that is inevitable, but they should be accurate estimates.
Other numbers, such as your bank balances, can be exact because they can be agreed to your bank statements.
If you have stock – count it and value it at least every quarter.
And make sure you are recognising the cost of depreciation of fixed assets each month and, assuming you are making a profit, make a provision for the tax you will have to pay.
Aim for no more than five working days as a deadline. Information is better fresh and waiting a month to know what happened last month is pretty pointless.
Setting a five day deadline will throw up issues in your business about people and processes. Both need to be fit for purpose.
The aim with management accounts is to make their production a routine, quick process and then to use them, along with other data, to monitor and improve business performance.
If it feels like pushing a very heavy boulder up a very steep hill – ask for help. It’s a false economy not to.
Michael
Related links:
Management information – Important as it is, no one does bookkeeping for the sake of bookkeeping
Management accounts – five steps to useful numbers
We don’t believe in forms, we believe in talking to people, finding out your needs and tailor-making a solution just for you.
Give us a ring on 020 7125 0270 or email us at info@bluedotconsulting.co.uk
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