Many small businesses do not produce management accounts, by not doing this they are putting at risk. Small business owners tend to perceive management accounts as just another administrative task.
Booking keeping & financial statements are focused on record keeping and compliance. You can leverage management accounts to help understand and improve your business.
Key benefits of producing management accounts:
Getting Funding For Your Business
Monthly management accounts would give any bank or other external investors more comfort over the management team and their ability to control their own business. If you are seeking investment in your business, you should start producing management accounts on a regular basis.
Understanding Your Business
Management accounts allow a business owner to analyse revenue and expenditure against budget and/or forecast by each line of business or cost centre. This allows the business owner to make informed decisions on the performance and direction of the business.
Improving Decision Making
Management accounts provide your business with real data that managers can use to make decisions. Good variance analysis should comment on actual business occurrences and not bookkeeping entries. Having numerical facts improves making profitable decisions for your business. Although the accounting information gathered will never guarantee an excellent decision, this will supercharge your possibility of making the best decision possible.
Solving Business Problems.
Management accounts will help you solve common business questions such as – What is our most profitable product? Which department has the most expensive staff?
Planning For The Future
Management accounts are crucial when planning the future and should form the baseline for your business planning activities. How will you know how much it will cost to open up a new shop/office and track the profitability of each product line?
The Negatives Of Producing Management Accounts
The biggest drawback of management account is the time it takes to produce and the expertise required. Producing management accounts can be time-consuming and paying an accountant or hiring a management accountant can be expensive.
Key To Success
The key to saving costs on in producing your management accounts is buying the right accounting software and implementing it correctly so it reflects the way your business operates. Once this is done, anyone with management accounting experience and knowledge of your business can produce your management accounts.