Management Accounts – 10 benefits to help you grow your business

Management Accounts – 10 benefits to help you grow your business

The vast majority of growing SME’s would benefit from the preparation of management accounts but what do they consist of and what are the advantages?

A set of management accounts usually consist of a profit and loss account and a balance sheet but they also should include key information on the performance of your business.  Every business is different so while it is obvious to expect the usual P&L, balance sheet, aged debtors and creditors there is so much more information that can be extracted from most accounting systems and your accountant should be the person you turn to.  Working closely with your accountant should bring the clarity you and your business deserve.

Here are 10 benefits that will help you grow;

1. Hold structured management meetings

Holding and recording quarterly or monthly management meetings with your management team will help you provide a useful forum for discussing management information.  These meetings create an opportunity to keep your team involved and informed about what is happening in your business and will provide them with an opportunity to contribute to the direction of your business.  Meeting agendas should include a section on finance, sales, operations and current challenges.  Keep meetings as short and as business like as possible.  Prepare an Agenda in advance and always review the previous minutes and discuss all previous actions points to make sure they have been carried out.  This is an opportunity to spot problems and seek solutions together.  It’s also an opportunity to decide and record your next set of key action items.

2. Business Planning and OKR’s

Be clear about your business objectives.  Like any journey, it’s easier if it is broken down into steps.  Be clear on what your expectations are, no matter how big, and break these down into annual, and then quarterly objectives.  Make sure that you fully understand what the key results would be if your objectives were achieved and make sure that they are measurable.  Avoid unclear objectives and results like “we are going to grow our sales” or “we are going to improve customer service”.  The acid test is to make sure that all of your objectives have clear measurable results like “increase sales by 10% in 12 months” or “improve our net promoter score by 30% by 31 December 2020”.  Make sure that your management reports include this message.

3. Measure performance – KPI’s

By placing structure around your business plan, you are more likely to achieve your goals.  Once you have decided on your objectives and key results, the next step is to decide what your key performance indicators are.  Each OKR can have a number of key performance indicators.  For example, to increase sales by 10% in 12 months does not mean that you just add 10% more turnover.  You may need to add more than 10% because you may be losing existing custom.  So your KPI’s won’t just measure sales, they may also have to measure customers gained and lost, average sales value, sales margins, new and lost opportunities etc.  Make sure that your management reports include this data.

4. Reduce costs

By having regular reliable management accounts, you will definitely save money.  One obvious saving is that your year end accounts bill will be much lower!  There are numerous opportunities to reduce other costs to.  You can set KPI’s to monitor any of your direct costs or overhead costs, how often stock is turned over, debtor and creditor days, uncharged labour, how many credit notes are issued in a given period etc.  All of these areas affect cash flow and therefore cost you money.

5. Reward staff

It is far easier to reward staff in a meaningful way if you have access to useful data about your business.  While care needs to be taken with any bonus scheme, it is much harder to implement if you do not have reliable data available.

6. Detect fraud

Fraud is not a tasteful subject to consider but did you know that directors have a prime responsibility to prevent and detect fraud?  As a director, you should be aware of the potential for fraud and this should feature as an element in any risk assessment.  By implementing effective systems of internal control, risk can be minimised and management accounts can play a part in these controls.

7. Budgets and cash flow

Keeping overall costs to a minimum is key to the running of a healthy business.  The potential savings that can be found by regularly reporting company performance, should easily cover the additional cost of management accounts.  Setting an annual budget is key to this process and help implement focus and discipline on the whole team.  Maintaining cash flow is key to all businesses but the larger the business the greater the task.  By preparing regular management information, a business is able to keep an eye on all elements of the business that have an impact on overall cash flow.

8. Tax planning

Nobody likes paying tax and it is far too late to do anything about it after your year end.  By preparing management accounts, unexpected tax bills can be avoided.  It is much easier to make key financial decisions such as investing in assets or perhaps paying into a pension scheme before the end of the financial year.

9. Dividends

Did you know that it is illegal to pay a dividend without first considering the available profit reserves?  By preparing management accounts, decisions on dividends can be made easily and legally.

10. Raising finance

It goes without saying that raising finance is much easier if you have a track record of preparing management accounts.  But why leave it until it’s too late?  By preparing management accounts, it is much easier to see trends and forecast when external finance may be required.