You may have heard that “management accounts are a useful tool to help you assess business performance”, but what are they and what does that really mean?
Management accounts give a business information on it’s performance allowing business owners to make fact based decisions rather than acting on hunches.
Key requirements are:
Management accounts should be produced on a timely basis so that the data is up to date, current and allows proactive decisions rather than reactive ones. Whether they are produced monthly or quarterly will depend on the size of the business and the resources it has available.
The information in the management accounts needs to be as accurate as possible, ie all invoices and received included, bank accounts and credit cards reconciled, stock figure accurate etc. If they are not as accurate as possible then there is a real risk of the wrong decisions being made.
MEANINGFUL and RELEVANT
The information in the management accounts needs to be meaningful and relevant to the business and the business owners. This means that the information presented will be different for each business as to what is important to them. In general, management accounts would usually contain:
Profit and loss account for the period and the year to date
Balance sheet at the period end (the balance sheet is a “snap shot in time showing the state of the business and it’s assets and liabilities)
Debtors and creditor reports (who owes money to you, and who you owe money to).
They may also include Key Performance Indicator (KPI) data too, this definitely will vary from one business to another but could include:
Gross profit %
Sales by department / product line
Sales by employee
Sales to marketing budget ratios
Social media reach etc
If you want to chat about how Simplified Accounting can help you then pop to the contact page and get in touch.