If you’re a business owner, you may have set both personal and professional goals for the year ahead. One common resolution for business owners is to get their company finances in check and keep them that way.
Only 23 percent of those who make a resolution will see it through to completion. Don’t be one of them. If you made a resolution to get your business finances in order in 2020, now is the time to act. The new tax year is a perfect opportunity to look at the accounting processes you have in place and make sure your business is prepared for anything the year ahead may have in store.
Allowing business owners to see what’s around the corner, management accounts aren’t a legal requirement, but the information gleaned can help you make informed business decisions, as well as helping to support your resolution to keep you accounts in check. A typical set of management accounts might include a profit and loss sheet, cashflow statement and summary report. Having this information at your fingertips will allow you to run your business more efficiently and potentially give you the edge over competitors, alongside other significant benefits. So, what are the benefits of preparing management accounts?
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.
Management accounts can also be a useful tool to motivate or influence the management team within the company, by enabling business owners to interpret financial data and clearly demonstrate 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.
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.
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.
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 – call us on 01322 555442 or email us to arrange a free initial meeting to see how we could help.