Management accounts are unfortunately often overlooked by small businesses.
They’re not a legal requirement like statutory accounts are for limited companies, but if you’ve got ambitions to grow or develop your business, management accounts are a must.
By summarising your financial position and reviewing your performance against key performance indicators (KPIs), they allow you to base your strategic business decisions on data. Without that, you’re essentially operating on guesswork.
The way you produce management accounts and the benefits they offer, can be different from one business to another, but we’ve set out four key advantages of using them.
1) Monitor your money
One of the most important benefits of management accounts is that they give you visibility on how your business is doing financially. This is more than a quick look at your bank balance – it’s about assessing your cash position in the short, medium and long-term, and being aware of the factors that could affect it.
By implementing this regular review of your financial health, you can run your business safe in the knowledge that you’re not at risk of unexpected cashflow crises.
2) Spot savings
Having a clear view of your performance should also allow you to spot opportunities for improvement.
It means you can look at your overheads and spot any changing trends, as well as reviewing any inefficient processes that might be losing you money.
It might prompt you to review your payment terms with customers and suppliers to improve your cashflow, change your approach to certain products or services, or cut back on unnecessary expenses.
Streamlining your business allows you to refocus on the goals that are important to you, as well as protecting yourself against any financial shocks down the line.
3) Develop your business
It’s very hard to improve something without measuring it. That’s a principle most business owners know well, and you might already be measuring certain KPIs or targets for things like sales numbers, productivity, or the performance of individual team members.
The real challenge is applying this approach from a top level down and getting an overall picture of how those measures all feed into your business’s performance. This is something management accounts can provide.
Reviewing your performance so far allows you to assess your business’s growth against plans you’ve already made, and make informed decisions about new investments or expansion.
4) Access finance
Your management accounts can teach you a lot about your business – but they can also be an invaluable tool to use externally.
Investors, lenders or funding providers need cold, hard data to convince them to part with their money – it’s often the main thing they’re missing when approached by hopeful business owners.
Coming to them with management accounts in hand shows them you’re on top of your finances and ready to put any concerns at rest. Even if the financial information isn’t all good, it shows you’re aware of any problems and provides a starting point for fixing them.
Get in touch to talk about how management accounts could benefit your business.