What are management accounts?
Management accounts are a set of financial and non-financial reports that assess a company’s performance over a certain period, for example monthly or quarterly. The report usually consists of a profit and loss account, balance sheet, cash flow statement and analysis or commentary.
Small businesses usually use these reports to assess their cash flow and the performance of certain business functions. As your company grows, management accounts are often presented to the senior management during board meetings, to financial institutions when applying for finance, and to equity funders when seeking funding.
In this guide, we help you to decide if you need management accounts. We’ll go through the benefits and insights you can gain from them, tips for preparing management accounts, and the process for outsourcing.
If at any point you have specific questions, feel free to reach out to our Client Services Team – we are always happy to help.
Financial accounts vs management accounts
Financial statements or financial accounts are required when filing the company’s Annual Returns, and tax returns. They are usually prepared once a year, have a prescribed format, and are a statutory requirement.
On the other hand, management accounts are not mandatory. They are prepared on a regular basis, e.g. monthly or quarterly. They are also generally easier to prepare than financial statements and they can be tailored to your success metrics.
One of the main differences is the analysis or commentary contained in the management accounts reports. They usually provide some non-financial information, such as analysis of a business’ most profitable customers, suppliers, target versus actual Key Performance Indicators (KPIs), and sales forecasts.
Benefits of management accounts
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Provides visual aid
Management accounts are usually highly visual – they can include graphs, dashboards, and pictures to help bring financial information to life. This is ideal for non-financial managers.
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Help you to make key decisions
Preparing regular management accounts allows you to back up strategic decisions with data. You may uncover insights and highlight areas of your business that need attention.
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Can be used for funding applications
Some financial institutions require Limited Companies to submit management accounts before they can apply for funding or grants.
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Help with future planning
Keeping a close eye on your management accounts can help you to identify and address threats to the future of your business, so you can take steps to ensure your business continuity.
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Help to lower tax liability
Management accounts can help you quantify your potential tax liability prior to your year-end which can help you to plan and manage your tax bill.
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Can help to reduce year-end accounting costs
Regular analysis of your management accounts can flag issues and queries that need to be resolved immediately. This can make tax returns easier and more efficient because you are in control of your finances.
What management accounts tell you
Trends in sales
Get an up-to-date overview of your business and compare with previous monthys to anticipate sales volumes, plan for staff, and anticipate stock levels to meet seasonality.
Performance of your business
Spot areas of your business that are doing well and highlight areas that may need improvement.
Cash-flow trends
The reports may highlight any trends in your cash-flow which can give you peace of mind that your business is healthy – or if not, then you can use it as a prompt to take action.
Key Performance Indicators (KPIs)
Add industry specific sucess metrics to your report or ask your accountant to tailor your management accounts.
Do I need management accounts?
If you have recently set up a Limited Company, you don’t generally need management accounts straight away. However, you may need them for board meetings or when applying for funding. Sole Traders also don’t usually need management accounts.
It’s worth noting that management accounts can often be overlooked as valuable sources of information because companies are not legally obliged to prepare them.
Many business owners consider management accounts to be vital for planning for growth, making strategic decisions, and evaluating profitability.
To learn more about management accounts and how we can help, talk to our Client Services Team today.
Preparing management accounts
There is no set rule as to how often you should prepare management accounts, although many businesses choose to prepare them on a monthly or quarterly basis.
Usually, access to your online accounting software provides all the necessary information, such as invoices, expenses, suppliers, and client information.
Many accounting software packages, such as Xero, can automate management reports but they do not provide expert commentary or analysis. This is why many of our clients choose to outsource to a professional, like Accountant Online.
To discuss your specific needs, contact a member of our Client Services team today – we’re always happy to help.
Outsource your management accounts preparation
At Accountant Online, we prepare management accounts on a monthly or quarterly basis according to your requirements.
We will analyse your financial statements, tailor the reports to your needs on an ongoing basis and hold monthly meetings to analyse your accounts, clarify any anomalies and deliver regular overviews.
Still have questions? Our Client Services team are always happy to answer any queries you have and discuss your business needs. Reach out to a member of our team today to discuss how management accounts can help you and how you can get started.
Tom is a Fellow Chartered Certified Accountant (FCCA) and Chartered Tax Advisor (CTA) and is Accounting Team Manager at Accountant Online. Areas of expertise include Accounting, Compliance, Taxation relating to small business and company directors.
