The Basics of Management Accounts
Management accounts are financial statements that provide detailed information about a company’s financial performance, activities, and position. The main purpose of having management accounts is so that the senior management within a business can make more informed decisions based on the company’s financial position.
Management accounts will generally include financial metrics such as revenue, expenses, profit, and cash flow. These accounts may also include information on assets, liabilities, and equity to give you a complete view of all financial matters.
They are commonly prepared more frequently than statutory accounts (or year-end accounts). This can mean they are either monthly or quarterly and are tailored to meet the specific needs of the management team. For example, the management team could be more interested in profit margins and cash flow compared to say expenses.
Key Components
The key components of management accounts vary depending on the business’s nature and the management team’s requirements. However, some common elements include:
- Income statement: This provides an overview of the company’s revenue, expenses, and profit for a specific period.
- Balance sheet: This shows the company’s assets, liabilities, and equity at a specific point in time.
- Cash flow statement: This tracks the company’s cash inflows and outflows during a specific period.
- Budgets and forecasts: These help in planning and setting financial targets for the future.
- Key performance indicators (KPIs): These are metrics used to measure the company’s performance against its goals and objectives.
Who produces them?
The accounts are typically produced by the finance department or accounting team within an organisation. In smaller businesses that outsource their accounting, their accountant may prepare their management accounts for the business owners.
Regardless of who produces them, the individuals responsible must have a strong understanding of financial accounting principles and be able to generate accurate and reliable information for management decision-making.
The Benefits Management Accounts
There are lots of benefits to utlising these reports. They offer several benefits for businesses including:
Better decision-making:
Management accounts provide timely and relevant information that enables management to make informed decisions and take appropriate actions to drive business growth and profitability.
Performance monitoring:
By regularly reviewing management accounts, businesses can track their financial performance and identify areas of improvement or concern. This allows for proactive management and timely intervention when necessary.
Financial planning and forecasting:
They also provide valuable insights for budgeting and forecasting purposes. They help in setting financial targets, evaluating the feasibility of business plans, and identifying potential risks and opportunities.
Stakeholder communication:
For management teams that report to stakeholders, management accounts can be used to communicate the financial performance and position of the company and report against key metrics that stakeholders such as investors, lenders, and board members are focussed on.
Compliance and governance:
They can also play a crucial role in ensuring compliance with financial reporting regulations and maintaining good corporate governance practices.
How to Create Effective Management Accounts
Identify your information needs
The first stage of creating management accounts is to understand the specific information requirements of the management team and the financial information that they are most focused on. This may involve consulting with key stakeholders and considering the industry-specific metrics and benchmarks.
Ensure data is reliable
Before you start creating your management accounts, it is vital that you do all you can to ensure that accurate and reliable data is collected to generate management accounts. This may involve implementing suitable accounting software or systems and establishing internal controls to maintain data integrity.
Establish a reporting frequency
Next, determine the frequency at which management accounts will be prepared and reviewed. This could be monthly, quarterly, or any other suitable interval based on the needs of the business.
Select relevant metrics
Choose the key financial and non-financial metrics that will be included in the management accounts. These metrics should align with the business objectives and provide meaningful insights for decision-making. These metrics may change over time depending on management needs and the focus of the business.
Present information clearly and concisely
Use visual aids such as charts, graphs, and tables to present the information in a format that is easy to understand and interpret. Highlight key trends, variances, and areas of concern or opportunity.
Need Support?
If you need support with creating monthly or quarterly management accounts, our team of chartered accountants can prepare these for you. We will tailor the reports to your needs and can be flexible if the data you need to be reported on changes.
On top of providing you with your accounts, we’ll also provide feedback and advice about how you can improve your business performance and become more efficient with your finances.
