If you’re a business owner, you probably spend a lot of time looking ahead to the future.
You may want to scale up your business, or have your sights set on breaking into a new market. No matter your personal of professional goals, you will need to have your finances in check to make it.
With the new financial year on the horizon, now is the perfect time to look at your accounting processes you have in place and make sure your business is prepared for anything the year ahead may have in store.
Something that can help you when making these decisions and predictions, are management accounts.
If you’re unaware of just what these are, then why check out our latest blog on just that topic.
Management accounts aren’t used by a huge amount of businesses, but maybe they should be.
They come packed with benefits that can help your business grow.
At Blue Rocket Accounting, we believe management accounts should be used by all businesses, and that’s why we’ve created this guide on five key reasons your business should break the mould and start using management accounts to assess your finances.
Let’s take a look.
Make efficient business decisions
Having a regular set of easy-to-understand management accounts produced, whether that’s monthly or quarterly, provides business owners with a bigger picture of the full financial trading position of the business and allows better short and long-term decisions to be made.
The process of preparing the monthly reports means that queries and problems will naturally be addressed and dealt with as they arise, rather than waiting until the year end and dealing with all queries at the same time.
Not only does this save time, it means less errors and unwanted surprises at the end of the financial year.
Finances can change quickly, and by having a clear set of KPIs set up that can be quickly checked for progress you can always keep on top of them.
Management accounts can also be a useful tool to motivate or influence the management team within the company.
They enable business owners to interpret financial data and will showcase why there is a need for sales to increase, or costs be reduced, for example.
Take steps to control costs
Having transparency over costs by tracking month-to-month expenditure makes savings easier to spot and is more efficient for the business.
Any gaps in cashflow or seasonal differences can be identified and planned for well in advance, for instance if you need to raise additional funding or to simply understand where the majority of your money is being spent and stop costs spiralling out of control.
Maybe you're spending too much on a product? It is better to know this straight away rather than after spending too much money for a full year.
Maybe you're not making as much money as you expected and it is time to start seeing where you can cut costs?
Management accounts helps to spot these issues as they happen, and can mean your reaction is quick and you can resolve any issues before they become much bigger problems.
Know your numbers when raising finance
Most businesses need access to additional funding at some stage to help them achieve their full potential, so being in a position to show that your business is well managed and controlled - with a clear set of accounts detailing what is happening within the business - can dramatically improve the chances of an application for finance being successful.
Lenders aren’t interested in taking unnecessary risks, so being able to provide a clear narrative alongside the numbers is crucial and will give a potential funder the reassurance they need.
It's a win-win with management accounts. Not only do they provide clear data over a prolonged period of times, but it also shows potential funders that you are on top of your finances and well organised, which is a great way to immediately build trust.
Help with tax planning and remuneration
Access to a knowledgeable management accountant and up-to-date accounts gives business owners the confidence to plan their tax more effectively – reducing taxable income, maximising allowable deductions and taking advantage of tax credits requires regular analysis, not just a review at year end.
Making accurate provisions for taxation and ensuring taxes are paid on time will avoid unnecessary penalties and improve operational decision making. It’s also worth remembering that inaccuracies in record keeping that result in an incorrect tax return can lead to a fine from HMRC of up to 30% of the extra tax due.
Being able to plan for dividends or target-based employee bonuses will sure up decisions regarding amounts and, ultimately, save your business from spending money it may not yet have collected, keeping your cashflow healthy.
When looking to sell the business
When preparing your business for sale, having access to up-to-date accounts, forecasts and budgets will allow you to more accurately predict where you expect the business to be and help explain any variances.
You will need to be able to demonstrate to potential buyers that your company is meeting its targets, and if not, explain why not.
It is also a great way to appeal to potential buyers. If they can see the finances have been well monitored and that the performance has been good, you're already half way there to getting the offer you need.
Management Accounting with Blue Rocket
Unfortunately, it’s often only after a bad spell of business that small business owners realise the true value of management accounts.
Why not take steps towards avoiding a bad spell in the first place?
The preparation of regular management accounts will help you better manage your business and make informed decisions.