Do you drive your car without looking at the dashboard? How would you know if you were speeding?
Do you wait for your Annual accounts to arrive before you look at your numbers for the year? By the time the accounts have been finalised the data is historical so making a decision on these I a bit like driving your car looking in a rear view mirror.
If you want better control and more visibility over your business, having both management accounts and a review is a great start.
Here are our 10 reasons why you should have management accounts:
- Better decision making
Up to date financial information gives a true picture of where the business is now, so you can base decisions on fact rather than a wing and prayer. Making actions from these more effective and ultimately enabling you to achieve your goals more faster.
- Make more timely decisions
If you are relying on Annual Accounts and your gross profit drops in month 1 of the financial year It could be 21 months later before this is identified. Having monthly or quarterly management accounts enables these changes to be identified earlier and ultimately save the business money as actions are taken much sooner.
- Ensure the business is on track
You would not drive a car without knowing where you are going so why would you do the same in business? Ideally all businesses should set targets and monitor the actual results against this so that you can ensure that your business is on track to achieving it’s goals.
- Monitor key business drivers
Every business will have key drivers or KPI’s (key performance indicators) that it needs to monitor. As service business one of ours is team costs to fees, by monitoring this trend we can identify when we need to recruit so service levels don’t drop and when the team have capacity.
- Identify areas of concern
Understanding the information within the reports will identify areas of concern. If your aged debtors balances increase this could be due to poor credit control or be an indication of a potential bad debt. Once identified you can take action to rectify it.
- Tighter cash management
Having a visibility of where the business is will enable you to understand your cash position more, if you understand it then you can get it under control. If credit control an issue you can monitor the average time customers take to pay an invoice and put actions into place to reduce this.
- Identify trends
Regular management accounts will identify trends that were not visible before, if your software costs are increasing slightly month on month then they need to reviewed for what isn’t used as these small increased can have compound effect.
Both yourself and your team can be held accountable, if your marketing spend is above budget this can be discussed with the marketing department to understand why, and they can then be held accountable to bring the spending back on track.
Accountability is about understanding the numbers and the action to improve them.
- Understanding of taxes due
Management accounts will have details of all your existing HMRC obligations i.e VAT / PAYE and should have an estimation of corporation tax due. By understanding what taxes are due there are no nasty surprise bills and you can even look for tax planning opportunities.
- Peace of mind
Having up to date information will stop the late night worry about where the business is, instead your energy can be focussed on keeping the it on track to reach your goals.
To get the full benefit of management accounts you need to set time aside to understand them, review them, interpret them so that you can take the necessary action. Our management accounting service helps you do this so that you understand the numbers and what they mean.
Keen to know more then contact us.