For all business owners, keeping track of your finances is key.
But this isn’t easy.
With money coming in and going out constantly throughout the year, just how can you ensure you are always on top of your numbers?
Well, something you may find handy are management accounts.
These are different to the financial records you send off every April, and their purpose is more internal.
But what are they? And how can your business incorporate them into your processes and future planning.
Let’s take a look.
What is a Management Account?
In a nutshell, a management account is a financial report that provides information to people within a business. This can be managers, stakeholders, potential lenders, and more.
The reason management accounts are made is to provide a bit of insight when it comes to planning for the future and assessing your business’s performance.
After all, do you want to be diving headfirst into a new investment opportunity when your finances are concerning?
Are you performing better than thought and think you may have the financial capacity to expand?
Is there an issue affecting the health of your finances that you aren’t aware of?
Management accounts can shed some light on the answer to these questions and ensure you aren’t jumping blind into any major decisions.
What Do Management Accounts Include?
There are many aspects to management accounts.
Some important documents to include could be:
· Balance sheets – This is a great way of getting an overall snapshot of where your company is at financially. It should show your assets, liabilities, equity, and will show a figure that your company currently is worth. This will be your assets and liabilities combined.
· Income Statements – An income statement shows a company’s expenses over a period of time, often a quarter or a year. It shows how much revenue was made over this period, including costs of goods sold, taxes, and other expenses.
· Cash Flow Statements – A cash flow statement shows the inflows and outflows of cash over a period of time. It shows how cash was generated and used during this period, including any investments and operations.
· Budget Reports – A budget report is a financial document that compares actual financial results to the budgeted amounts for a specific period of time. This is a good way of seeing how your company has performed and getting an overview of where you are at versus where you thought you would be.
· Key Performance Indicators (KPIs) – Most businesses have ways of assessing performance, and using KPIs is a popular one. These are indicators set at the start of the year from which you can base performance on and set targets to see if your business is overperforming or underperforming.
There are other documents that can be added to management accounts, and the best way to know what to put into yours is to work out what is important to your company.
If you are target-driven then using KPIs would work well. If you want to plan ahead, seeing more financial figures would be more important.
Using management accounts is a great way of assessing performance internally, and working out any ways you can improve accordingly.
How to Set Up Management Accounts
So, if you’ve read the first part of this blog and think management accounts are something your business needs to look into, here are seven quick steps on how you can start creating them today.
1. Define What You Need to Know
As mentioned earlier, there are many different documents you can place into management accounts, and not all of them may be relevant to what you want.
Speak with all of your team and work out what you need to know before creating an account so you can keep your management accounts streamlined to just the information that matters.
2. Identify Your KPIs
What do you think will really showcase growth for your business?
Is it doubling your revenue?
Is it employee turnover rate?
Maybe lowering the amount you spend on expenses is what you need to focus on.
Set your KPIs so that they answer the questions you want the answers to.
3. Gather Your Financial Data
Because there are a lot of varied documents that go into management accounts, you may need to use several different sources of information.
Whether you store your data manually or you use a computerised system, try and collate it together so you have it in one place when making your accounts.
4. Organise Your Data
This is a point that applies to all forms of accounting as well as when setting up management accounts. Having data that is organised makes it much easier to find the information you are looking for.
Bookkeeping can be tricky, but if you can find a process of storing your records that works for you, you can make the process of analysing them much more efficient.
5. Analyse the Data
Once you have all the data you need, you need to assess it. Input your data into your KPIs to see if you are really hitting your targets or if you are falling short.
By analysing your data, you can spot any trends, patterns, or areas of concerns that are highlighted and really get a clear insight into the financial performance of your business.
6. Present the Data
When it comes to presenting your data, try and remember that people may not be quite as finance-savvy as you.
Try using graphs, charts, and tables to showcase the data you found in a clear and concise way that can be easily understood by everyone who needs to see it.
7. Review the Data
Whether you look at them every month, or just once a year, use the data provided in your management accounts to see how your business is performing.
Set future goals and plan the future strategy of your business based on the information you are being provided with.
Management Accounts with Blue Rocket Accounting
Creating effective management accounts isn’t easy, but the benefits are huge.
It takes careful planning, attention to detail, and a deep understanding of financial data.
If you would like to create some Management Accounts for your business but think you may need some help along the way, get in touch with Blue Rocket Accounting.
Our team of experienced accountants can build your Management Accounts by reviewing your whole company finances, benchmarking them and supply you with a detailed review and report so you can get a full picture of where you are and where there is opportunity for untapped growth.
We can’t wait to hear from you.