I know many small businesses struggle to complete their financial accounts. So why do you need management accounts for your business?
Follow my video, or read below and I’ll explain exactly why.
The difference between financial and management accounting
Financial accounting is what you use to prepare your accounts at the year-end.
These must follow certain UK GAAP accounting rules and will be filed with Companies House and HM Revenue and Customs annually. Currently, in the UK, you’ve got 9 months after your year-end to produce your financial accounts.
Management accounts are better for making financial decisions. They’re live, not 9 months out of date like financial accounts. Your management accounts will have a similar format but aren’t prescriptive like financial accounts following set rules.
Management accounting and strategic decisions
Management accounts will help you with strategic decisions. In your business plan, you’ll have defined your strategy and goals. Your management accounts should tell you if you’re off track and highlight opportunities for growth because the data is live and up to date. This allows you to take action when you spot a good opportunity.
Operational decisions
Operational decisions – management accounts should also highlight operational issues. What is going well, what are you struggling with, underperforming team members or products, and customer problems? Look at your management accounts for operational decisions on what to do more or less of. This will likely include key non-financial metrics that impact your business.
long-term planning
Management accounting helps with long-term planning, too.
Regular management accounts over the years will spotlight trends like consistent growth rates. You can use this detail for long-term strategic planning.
Make sure your management accounts are tailored to your needs. There’ll spot red flags specific to your business that act like the roses at the end of vineyard rows – early warnings something is wrong so you can fix problems before they ruin the grapes.
Monthly management accounts are best, but bi-monthly or quarterly can work, too, if prepared correctly. The key is taking action on them, not just producing them. If you don’t currently have management accounts, look into an accounting software to help prepare them. This data will allow you to make better decisions and actions to help your business thrive.
I hope this blog was helpful! Please get in touch with me if you have any other questions. I’m happy to schedule a free 30-minute discovery call – no sales pitch, just your questions answered.
