Are your management accounts helping you?
Having a set of management accounts to refer to is like having a barometer that measures the ‘temperature’ of your business. It will tell you the story behind the bottom line and help you to make decisions about your business that are based on a firm foundation.
Annual figures are quickly out of date, but a quarterly or monthly set of management accounts will give you valuable information.
Management accounts give you an insight on the profitability of each project. You can look at a detailed profit and loss account each month or quarter on a project-by-project basis. This ensures that you spot any losses or adverse profit margins in real time and can address them promptly.
You can track actual results against budget. If you have an annual budget for the year ahead your management accounts allow you to compare the actual results each month or quarter against this budget. You can keep track of spending and ensure that you don’t end up blowing the budget out of the water. Any variances can be investigated and rectified before there’s a real financial problem.
By seeing the profits of the business as the year progresses there is the opportunity for tax planning measures. This allows you to make decisions that will reduce your tax liability, before the year end.
When you’re submitting tenders for projects you will normally be asked to provide management accounts, as well as statutory accounts. In some cases statutory accounts could be 9 months old, so the principal company receiving your tender will want to see more up-to-date real time numbers for your business.
If you are looking to obtain finance any lender will want to see up-to-date numbers in addition to historical statutory accounts. They want to know that your finance plan is built on solid ground.
If your plan is to sell the business in 5 years or even 10 years, any purchaser will want to see management accounts. If you are unable to provide these, it is really off-putting for a buyer. They are likely to question how well the business is run. It doesn’t say you have a well-managed business if you’re relying purely on year-end annual accounts information.
When you’re ready to recruit new team members your management accounts will give you an insight into affordability and how that new hire will contribute to the overall profitability.
The plus for most businesses is that your digital software will deliver management accounts at the click of a button, providing you’ve got your software package set up properly.
If you have any questions on your management accounts, then please feel free to get in touch with the Cook & Partners accountants Hertfordshire team today and we’ll be more than happy to help you.
