When you’re in business, having a deep understanding of your organisation’s financial health is crucial for making informed decisions that drive growth. But how can you organise the data so you have the important information at hand?
This is where management accounts – financial reports tailored for internal use to aid in strategic decision-making – come into play. Let’s explore why management accounts are vital for business growth.
What are management accounts?
Management accounts are internal financial reports generated voluntarily on a regular basis – monthly or quarterly – to provide a detailed analysis of a business’s financial performance. As the name suggests, they’re designed for the senior management level of a business.
These reports typically include data on revenue, expenses, cashflow, and profitability. They are ultimately designed to offer a snapshot of the business’s financial health, enabling managers and business owners to make informed decisions swiftly. According to the Chartered Institute of Management Accountants (CIMA), businesses that utilise management accounting practices are 30% more likely to experience growth than those that don’t, thanks to better-informed decision-making.
This is different from statutory accounts, which are reports that some businesses are legally required to produce. These accounts are still important for financial analysis but they provide a broad overview of the business’s performance over the fiscal year. Management accounts, on the other hand, are created more frequently and can be customised to the needs of the business and internal stakeholders.
The benefits of management accounts
Producing management accounts is not a statutory duty, meaning that businesses are not legally required to make them. However, there are many benefits of taking the time – or getting the help of a finance professional – to make them.
Improved cashflow management
Effective cashflow management is essential for sustainable business growth. Without it, you could quickly run into trouble when expanding – or never get a chance to grow in the first place.
To improve your cashflow position, you need detailed information about your cash inflows and outflows so you can identify any issues before they become critical. Then, you can ensure you have sufficient liquidity to meet your operational needs while planning for future expenditures.
Enhanced profitability analysis
Management accounts provide a comprehensive view of a company’s profitability by breaking down revenues and expenses, which helps businesses analyse profit margins, track performance against budgets, and identify areas where cost efficiencies can be achieved.
It goes without saying that by understanding which products or services are most profitable, businesses can make strategic decisions to enhance their profitability.
Accurate forecasting and planning
Forecasting future performance is crucial for strategic planning and business growth. Management accounts provide the data you need to create realistic financial forecasts, set achievable goals, anticipate market trends, allocate resources effectively, and develop growth strategies.
Management account services
Management accounts are a great tool for businesses but they do take serious time and effort to produce, which is why many businesses turn to professional accountants like Hamilton Morris Waugh.
But hiring an accountant isn’t just about saving time and effort that you can spend elsewhere; it’s about the valuable insights and recommendations accountants will provide in written reports based on the data alongside your accounts. Fundamentally, an accountant will be able to help you understand complex financial information, identify trends, and make strategic decisions that drive growth – all while producing reports tailored to your audience and needs.
A UK Business Insights report from the Office for National Statistics (ONS) highlights that 43% of UK SMEs that adopt more frequent financial reporting (such as management accounts) are better able to manage cashflow and allocate resources more efficiently, contributing to improved business growth. Now, that’s a compelling argument.
If you need help with your management accounts, contact us. We can produce reports tailored to your requirements.