Management Accounts

AccountsandFinancial Accounts?

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Financial accounts arefinancial statements preparedprimarilyfor external stakeholders such as investors, lenders, regulators, andthegovernment Thefinancial accounts typicallyinclude:

•A balancesheet

•Incomestatement

•Statement of cash flows

•Notes to thefinancial statements

Thefinancial accounts provideinformation about thecompany’s financial performance, liquidity, andsolvencyandarepreparedaccording to accounting standards legallyfollowedin Ireland

On theother hand, management accounts arefinancial statements preparedprimarilyfor internal stakeholders such as management, employees, andowners Management accounts areusedto makeinformeddecisions about thebusiness’s operations, such as identifying opportunities for cost savings, improving profitability, andmaking strategicdecisions

Themanagement accounts can includevarious financial andnon-financial information, such as budgets, forecasts, performancemetrics, andvarianceanalysis Unlikefinancial accounts, management accounts arenot requiredto complywith theinstructions of a standards bodyand can betailoredto thebusiness’s specificneeds

Now that you know thedifferencebetween management andfinancial accounts, let’s explorewhy theymakesenseandhow theycan benefit your business

It makesStrategic Planning Easy

Management accounts providea valuabletool for strategicplanning byoffering insights into the financial health of a business Thedata andinsights providedbymanagement accounts can help management identifyareas of thecompanythat areunderperforming andneedimprovement and areas that areperforming well andshouldbefurther developed

With this information, management can develop strategies andmakeinformeddecisions that align with thebusiness’s long-term goals If thebusiness has identifiedspecificstrategicobjectives, management accounts can significantlycreateshort-term plans to reach thoselong-term goals

Enables Effective Decision Making

Management accounts providean up-to-datesnapshot of thefinancial health of a business, enabling management to makeinformeddecisions quickly Byhaving access to real-timefinancial information, management can identifypotential issues andtakecorrectiveaction beforethey becomesignificant problems

Provides Valuable Insights

Management accounts providevaluableinsights into thefinancial health of a business, offering a wealth of information to makeinformeddecisions This information includes sales figures, profit andloss statements, balancesheets, cash flow statements, andother critical financial data

Byhaving access to this information, management can better understandthebusiness’s financial position andidentifygrowth opportunities

Facilitates Performance Measurement

Management accounts providea valuabletool for measuring theperformanceof a business By tracking keyfinancial metrics such as revenue, profit margins, andreturn on investment, management can identifyareas wherethebusiness is performing well andwhereimprovements can bemade

This information can then beusedto develop strategies to improveperformanceanddrivethe business’s success

Helps With Budgeting

Management accounts can also beusedto help with budgeting byproviding a clear view of the business’s financial health Byhaving access to this information, management can develop realistic budgets alignedwith thebusiness’s long-term goals

Management accounts can also help with cash flow forecasting, enabling management to plan for potential cash flow issues andtakecorrectiveaction if necessary

Do weneedto preparemanagement accounts?

Management accounts, which aresometimes also calledmanagement reports, month endreports or monthlyfinancials arefor thebusiness to use, thereis no legal requirement to preparethese

Theydo not needto besent to Companies Houseor HMRC

Theyareintendedto help business owners get a better understanding of thefinancial performance of their business, to help them makebetter business decisions using this information

Do management accounts just includefinancial information?

Theycan just includefinancial information but at Telfords werecommendthat you includenonfinancial information to providemoremeaning andrelevanceto you andyour team

You can includereports on other important business measures or keyperformanceindicators (KPI’s) in your business

How shouldIusemanagement accounts information to improvemybusiness?

Your business management information shouldprovideyou with relevant andmeaningful information which will enableyou to measureandimprovebusiness performance

If welookat financial performancefor example, thefollowing areexamples of KPI’s you could measure:

•monthlysales

•gross profit margin

net profit margin

•staff costs as a % of sales

How often shouldIpreparemanagement accounts?

This reallydepends on you andyour business Werecommendthat theyshouldbepreparedat least quarterly Somebusinesses prefer monthly

Thekeyis to usetheinformation to enableyou to makebetter business decisions, such as:

do weneedto improveour gross profit margin?

when can weaffordto takeon a new employee?

when is our cash position strong enough to purchasenew vehicles?

which areas of our business generatethebest return andshouldweconcentrateon?

do weneedto increaseour sales andmarketing spend?

do weneedto get additional funding in placeto financebusiness expansion?

To Sum It Up

Management accounts makesensefor businesses of all sizes Theyprovidevaluableinsights into thefinancial health of a business to help themanagement maketheright decisions

Byproviding real-timefinancial data, management accounts help with strategicplanning, effective decision-making, performancemeasurement, andbudgeting With so manybenefits, it’s no wonder that management accounts havebecomean essential tool for businesses looking to remain competitivein today’s marketplace

BY: OutbooksIreland