What are management accounts?

May 26, 2023

Business experts often sing the praises of in-depth financial reporting — but what exactly are management accounts, and why are they so important?

Management accounting plays a key role in any successful business, but you need to understand how it works before you can reap the benefits. Here’s what you need to know.

What are management accounts?

Management accounts are in-depth financial reports that go beyond the basics. Closely examining all aspects of your finances can give you a more accurate snapshot of your business performance, helping you make well-informed business decisions.

While preparing statutory accounts is mandatory for all limited companies, HMRC doesn’t require management accounts by law. It’s not a box-ticking exercise: it’s about revealing key insights into your business.

Companies typically produce management accounts on a monthly, quarterly or annual basis, and they can be as detailed or simple as you need.

What should management accounts include?

There’s no one-size-fits-all approach to management accounting, but a typical set of accounts will generally include the following.

Key Performance Indicators

Key Performance Indicators (KPIs) are measurable targets your business wants to hit over a period of time. Monitoring your KPIs can help you focus on your business strategy and keep you and your team on the right track.

Staff performance, monthly sales growth and customer billing are just a few examples of KPIs your business could use.

Profit and loss

Your profit and loss statement details all your income and expenses so you can tell how much money you’re making — or losing — over a set period.

Management accounting takes this a step further by measuring your financial performance against previous years and your current budget. You can also create separate profit and loss statements for different departments to help identify areas for improvement.

Cash position

Understanding how much cash you have at any given time can help ensure you always have enough money to pay the bills. As well as drawing up a cashflow statement, a management accountant can:

  • measure how quickly clients pay invoices
  • identify how seasonal spending patterns affect your business
  • help you understand how your business makes money over time
  • offer advice on where to allocate money in your business.

Balance sheet

Your balance sheet contains details of your company’s assets, liabilities and sources of finance at a specific moment in time.

Think of it as a financial health check for your business. Looking at your balance sheet over time can give you valuable insights including how well your company manages debt and how quickly different assets generate income.

Why should I use management accounts?

  • keep track of growth — producing regular management accounts will allow you to monitor your growth and business performance and compare it against previous periods.
  • look to the future — a greater understanding of your business can make it easier to draw up realistic budgets and cashflow forecasts.
  • secure funding — good management accounting is essential if you want to create a business plan complete with financial reporting that turns investors’ heads.
  • improve your processes — keeping your management accounts up to date can help you identify areas for improvement and flag potential issues before they become too severe.

How can I get management accounting right?

Getting management accounting right is essential if you want to make business decisions that move your company forward, so we’d recommend working with a professional.

As management accountants, we can be your expert strategist, business adviser and risk manager rolled into one. We’ll crunch the numbers for you, help you understand your finances inside and out and recommend actions you can take to boost your business performance.

What are management accounts? Get in touch with us today to find out more.

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