Unless you’ve been blessed with the calling of accountancy, it’s doubtful you set up your business to get lost in the numbers. Your passions likely lie in the product, the service, the brand.
While that’s good news for accountants, it does mean you’re missing out on the beauty of management accounts.
What are management accounts?
When did you last hear the words ‘management accounts’ and ‘beauty’ in the same sentence? Scratch that – when did you last think about management accounts? Precisely.
These beautiful (to some people) records are like a Year End accounts summary, but they’re produced monthly or quarterly. They give a detailed insight into your balance sheet and your profit and loss – a current view of your business now and next, not what happened last year.
You can tailor your management accounts to display the information most important for you, for example stock numbers and orders. Unlike just another spreadsheet, these babies can tell you a lot about your business.
What can management accounts do for me?
Of course, there’s great value in seeing how you’ve performed at the end of the year. You can monitor business growth, make decisions – even shout about it to the local papers. What management accounts do, however, is give you real-time views of what’s going on month by month, which is a great predictor of things to come.
Let’s put it into context.
- Seasonality: you might run a service-based business, such as a restaurant. Having a month-by-month profit and loss account will show you the busiest months, helping you to decide when to hire extra staff or control stock levels.
- Growth: year on year figures might be fooling you into growing quicker than you can handle. Monthly accounts show the fluctuations in your outgoings – are you factoring in the costs of stock and staff?
- Marketing: again, we can look at seasonality to discover which are the quieter months, or we can study the ROI of the marketing efforts we are making, month by month.
- Long-term profitability: management accounts may show up red flags that you overlooked. For example, if you run into cashflow problems at certain times of the year, this could affect your profits long-term.
Why do we need management accounts?
While some of these might sound scary, they’re actually great tools for following that Scouts motto once again: always be prepared. Management accounts give you better visibility over your future outgoings, and help you to plan your cashflow management. This can help you to assess:
- Breakeven points – increasing profit margins
- Stock levels – reducing waste
- ROI – for promotion and general growth plans.
Plus, they’re not only for you. While they make life easier for accountants, they can also be a pretty nifty weapon in your business arsenal. Consider how they might benefit you and third parties:
- You can show them to investors
A yearly summary might seem like smoke and mirrors to investors. With a transparent set of regular accounts, they can determine the value of investing in you. Honesty is the best policy!
- Bank managers will be impressed
It’s one thing to secure an investment, but what about a business loan? Watch them light up as you show them just how well you’ve managed your cashflow…and where you could take the business.
- Accountants will love you
Speaking from experience, it’s true that management accounts will make our jobs easier, and help you with your tax affairs.
- You’ll convince stakeholders
Could you afford to invest in a second shop if your teams stopped spending so much on Costa Rican coffee? Of course you could! Management accounts are crucial for decision-making, from cutting wasted costs to growing the business.