What are the benefits of management accounts?

by Michael Blaken

Published on 9th April 2024

Do you create management accounts for your business? If so, do you make full use of them? Are you aware of the benefits that management accounts can bring to a business? Are you unclear about what management accounts are?

what are the benefits of management accounts

What are management accounts?

Most people have heard of management accounts but not all businesses produce them. Management accounts are financial reports produced for business owners and directors, usually on a monthly or quarterly basis, and will generally include a profit and loss (P&L) account and a balance sheet.

They are very like end-of-year accounts but less formal, more tailored and the major benefit is their frequency, so business owners and directors can know in real time how the business is performing, rather than waiting until the end of the year.

How management accounts help a business

Management accounts offer real-time information and that information is essential for owners/directors wanting to make sure their business is on track.

Sitting down and talking through management accounts provides an opportunity to look at how the business is performing and also to make decisions on changes that should be made to rectify any issues.

Here’s an example. If margins are being eroded, management accounts will make this clear immediately. If, by contrast, this is only spotted when end-of-year accounts are produced, think how much profit has been lost and how much could have been clawed back if changes had been made the minute the problem arose.

Management accounts also provide a great opportunity to compare performance on a year-on-year, quarter-by-quarter, or even month-by-month basis. Delving into why changes have taken place – why profits are up, or down – will help inform what should happen next.

Management accounts may also reveal patterns or seasonal variations in buyer or supplier behaviour, which may not be obvious by looking only at end-of-year accounts.

Who could benefit?

The answer is, management accounts are useful for all businesses, whatever their size, but they are particularly beneficial to fast-growing business.

Increasingly, we have clients who are asking us to produce management accounts. We sit down with the figures – whether monthly or quarterly – and go through them with a fine-tooth comb, interpreting the information and acting as a trusted adviser to the business owner, focusing on their forward journey.

For example, we have a new construction client who has now opted to look at his management accounts with us. He realised, when he saw his end-of-year accounts, how useful it would have been to have accessed information more frequently, throughout the year.

We’ve spotted volatility in his margins, which was due to missed invoicing. This can now be rectified and the invoices issued in a timely fashion rather than waiting until this is highlighted at the end of the year.

With another client we spotted an anomaly and were able to help him identify there was a stock issue; the volume of stock actually on the shelves didn’t tally with the figures. It took some working out, but the numbers don’t lie, so we kept digging until we found the cause of the problem. If this issue had been left to fester for a year, until end-of-year accounts were due, it could have seriously impacted the business.

Having another pair of eyes looking at the figures on a monthly or quarterly basis is a boon. As our client Nick Oldland, co-director of Anything Stone said:

“Every month we sit and review the previous month’s numbers, as well as compare them to year-on-year changes. We analyse them, and why they might have changed. This has significantly improved the way we look at stock, how we move stock, our balance sheet and our P&L.”

If you would like to talk to us about producing and analysing management accounts, where we interpret the figures for you, talk them through and give you sound advice, so you can keep moving forward, email Accounts Director Michael Blaken. We also talk about management accounts in the ‘Knowing your business’ episode of Optimum Live!

We provide accountancy and legal services to business owners and directors in Swindon, Cheltenham and the surrounding areas. For more information, please get in touch.

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