What are management accounts?
Management accounts give a business TIMELY, ACCURATE and MEANINGFUL information on it's performance, allowing business owners to make decisions based on facts rather than hunches and ideas.
One of the key requirements for management accounts is that the are produced on a TIMELY basis, otherwise the data presented is old, out of date and of little use to the business as a basis for making decisions as these decisions and actions are then REACTIVE rather than PROACTIVE.
Another key requirement is that they are as ACCURATE as possible i.e. ALL the invoices and receipts are included, bank accounts and credit cards have been reconciled, till floats reconciled and that the stock figure (if applicable) is as accurate as possible - there is no need for monthly or quarterly stock takes but if you don't operate a stock management system to track what stock you do or don't have then it is worth looking into this (this doesn't have to be a complex or expensive solution, for many small businesses a basic spreadsheet will do).
To be MEANINGFUL, the information needs to be RELEVANT to the business and as such the format of management accounts will vary from one business to another but in general will include:
- 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" of the state of the business and it's assets and liabilities)
- Debtors and creditors reports (i.e. who owes you money and who you owe money to)
They may also include Key Performance Indicator (KPI) data too. Depending on what is meaningful to the business this could include:
- Gross profit %
- Sales by department / product line
- Sales by employee
- Sales to marketing budget ratios
- Website anaytics
- Social media reach etc.
Management accounts can be monthly or quarterly, depending on the size of the business.
If you would like to understand more about management accounts and how they could help your business then please do get in touch.
If you would like to understand some of the terminology within the blog in more depth then look at out A-Z GUIDE in our resources section of the website - if you receive our newsletter you can get a copy of this for FREE so please do get in touch if you haven't had your free copy.