Management accounts can be an essential tool when looking to get control of your finances and plan for the future of your business.
These are financial reports that provide insights into the performance of a company over a period of time.
If you plan on using management accounts, you must make sure you’re using them right to make the most of them.
Here at Blue Rocket Accounting, we believe management accounts are ideal in helping to guide and advise a business, and that’s why we’ve created this guide on the five steps you should take to use them effectively for your business.
Let’s take a look.
Step 1: Understand What They Are
The first thing to do when working with management accounts is really work out what they are and what they can do.
Building your knowledge of this will help you use every feature to really make the most of your reports.
Management accounts are designed to provide timely and accurate financial information to key decision-makers within a company.
They can then use this information to make informed decisions on the future, as well as identifying trends within their business and assessing performance.
These aren’t to be used as figures to send when providing your financial data for tax purposes, but instead they are to be seen by you and your business, and no-one else.
They can be designed how you like, and reported how you like, so working out how best they will suit you and your workforce will mean you can build the perfect management accounts for you.
Want to know more? Check out our guide to what are management accounts.
Step 2: Define Your KPIs
Now you know what a management account is, what key metrics do you want it to track?
KPIs are key performance indicators, and these are an important part of your accounts.
Some examples of KPIs that can be found inside these reports are revenue growth rate and gross profit margin. You can also assess some metrics that cover a broader range, such as customer acquisition cost and average order value to gain further insight into your business performance.
The important thing here is working out what you would like the management accounts to focus on, and adding these KPIs to be closely tracked so you can efficiently and clearly assess your results.
These KPIs will serve as the basis of your management accounts and play a key role in all reporting and decision-making that comes thereafter, so don’t rush into making a decision on which to use and take your time, asking many different members of your workforce what is important to them and building your KPI list in accordance.
We have complied a list of seven great KPIS to use in your management accounts so check it out for more information.
Step 3: Set up a Regular Reporting Schedule
Now you have the formula for your management accounts set up and you know what is tracking, you must decide how frequently you would like to track it.
If you’re a new business and finances are relatively volatile, it may be a good idea to check over your management accounts monthly so you can quickly respond to any drops in performance that are flagged.
This can be a good choice for small businesses where cash reserves are often lower than in larger companies.
For large companies, assessing your management accounts quarterly or even annually may be sufficient.
It takes time to create and assess your accounts, so workout if you have the manpower to do it more frequently and if this would benefit your business and get a regular schedule set up so that everyone knows when and how the reporting will take place.
If you have a regular AGM where big decisions are made, it is a good idea to schedule your accounts to be created before then so you can use the data to help inform your decisions.
Step 4: Create and Review Your Management Accounts
So, you know what’s in your accounts, and when they need to be created, and now it’s time to do just that.
Use accounting software or your own method to generate your accounts, inputting all of your figures and adding them into the various equations, charts, and graphs that you would like to use to help oversee your performance.
Some key elements that you should look to create are balance sheets, profit and loss statements, cash flow statements, and of course, your KPIs.
If you have a member of your staff creating these files, then they should be prepared to present them to key decision-makers in your business. This way, everyone can see clearly how the business is performing and know the best next steps to take.
The more regularly that you create these reports, the more you will be able to streamline the reporting and presenting side of it, which will make this process much more efficient.
It is a good idea to set up accounting software such as Xero or Quickbooks which will be able to automate large parts of this which will be a big help.
Finally, make sure all data is labelled and presented clearly so it is simple for the decision-makers to review.
Step 5: Take Action
The final step of your management accounts process is to take action on the figures that you are seeing.
Once you have looked over your accounts and identified areas for improvement or opportunities for growth, you must address them.
This can come in many forms.
It may be changes that need to be made inside your business, such as price changes for some products, extra staff training being actioned, or amendments to work protocols and processes.
It can also be in the form of future decisions, such as expansion or investment opportunities that you feel you are in the right financial position to take now.
Using the insight garnered from your management accounts, you can now make the informed decisions that they are there to provide and ensure that your business is on track to meet and exceed its goals.
Management Accounting with Blue Rocket
Our team specialise in providing advice and guidance on management accounts.
Whether you run a small business, or a global one, we can help you prepare, present, and action the information shown on your reports.
Want to know more?