The Importance of Management Accounts for Small Businesses
Small businesses are the backbone of many economies around the world, with well over 5 million operating in the UK alone.
From the shop on your high street, to the landlord who you rent your property from, these small businesses come in many shapes and sizes.
But managing a small business can be challenging, especially when it comes to finances.
Having a clear understanding of your financial situation is vital for small business owners, as it allows them to understand where they’re at financially, and plan ahead for the future.
And this is where management accounts can help.
Small Business Management Accounts
We’ve spoken previously on our blog about just what management accounts are and the benefits they provide, so if you’re unsure, go check them out.
But for this blog we’re focusing on small businesses, and why using management accounts is so vital.
Our team at Blue Rocket Accounting love nothing more than seeing our clients succeed, and that’s why we’ve compiled these five reasons you should start using management accounts today, starting with this one:
Help Turn Your Small Business into a Big Business
For any business, big or small, being able to forecast finances and plan for the future is a big advantage.
Making decisions can be scary, as wrong choices can have big consequences on small businesses.
One thing that can help minimise bad choices though, is clear financial records.
Management accounts provide small business owners with a clear picture of their financial situation.
They can help identify areas where the business is doing well, and areas that are struggling, and this information is important when it comes to making decisions on the future, such as investments or where to allocate resources.
If a small business owner looks at their finances and see sales are dwindling for example, they will know it is better to invest more into marketing, rather than more products.
Making these strategic decisions is much easier with plenty of information to back you up, and in a small business when you may be in charge of all aspects of running things, this peace of mind and foresight is invaluable.
Know How Your Cash is Flowing
Another difference between a small business, and a larger one, is that the finances are often smaller.
While some businesses make tens of thousands a month, some make less, and it is these businesses which must focus heavily on where they are spending.
Keeping an eye on cash flow is critical for small business owners, and management accounts provide a way to keep an eye on them over short periods of time.
This means that if cash is looking short, you will know this quickly, and before you run out and are unable to keep up with required payments.
Having a close eye on your finances is important, especially when you have regular outgoings such as property fees, staff wages, and taxes.
Being proactive rather than reactive is key in these situations, and that is what management accounts can provide, so get ahead of the game and always be able to proactively make changes that are needed to ensure you are always in the green when it comes to your financial health.
Improved Accountability for Issues
When it comes to small businesses, tiny changes in your businesses can make big differences to your finances.
With management accounts, you check your finances regularly. This makes it much easier to pinpoint where any issues are coming from.
Noticing a drop in customer acquisition? Maybe there is an issue in the marketing department.
Seeing sales plummet? Maybe there is an issue with your sales team, or the product, or even the market.
Being able to spot these issues means that you can set regular targets and hold yourself and your team accountable for when you don’t hit them targets.
This accountability can be a big motivator to staff and small business owners alike, who will strive to keep on top of their targets and always hit their goals.
Why not add an extra incentive with a bonus or an extra day’s holiday every quarter if your goals are met? This is a great way of continuously pushing your staff to improve that will also greatly benefit your business.
Better Understanding of Profitability
Small business owners need to understand their profitability to make informed decisions about pricing, product offerings, and other business strategies.
A small business may not have a plethora of products or services that are available to their customers. It may only be five or ten things.
If this is so, by assessing your finances on each product or service regularly, you will be able to see which are performing better, and which aren’t.
This will allow you to make an informed decision on what to do with your products. Maybe you need to up the marketing budget for some struggling products, or will it be a better approach to focus more on the products that are already performing well and bringing in good money.
By analysing revenues and expenses in detail, management accounts can help to provide a clear picture of a business’ profitability, and give the small business owner a much clearer understanding on next steps in order to maximise the profit their business is achieving.
Facilitate Tax Planning and Compliance
For small businesses, there are various tax regulations and laws that need to be adhered to depending on the industry you’re in.
Management accounts can help small business owners plan their tax strategy more effectively, by keeping a close track on finances and also pointing out areas where there may be the potential for tax deductions.
For example, if you’re a small business owner and you notice that you have a large amount of taxable income, then you may decide to invest in assets that can be depreciated for tax purposes.
While it is important to always comply with tax laws, management accounts may showcase some areas in which you can legally spend some money on some areas that are tax deductible, therefore reducing the final amount you have to pay.
Of course, if you are unsure of the rules when it comes to this, it is always a good idea to speak to an accountant who can advise you on this matter.
Management Accounts at Blue Rocket Accounting
If you would like to assess your small business finances ,then our management accounts team can help.
At Blue Rocket Accounting, we have years of expertise in working with small businesses and helping them get a grip of their finances and scale up.
If you want to be the next one we help, then get in touch today.