Management accounts are simply a tool to enable owners/managers of a business to make informed day to day and short term decisions on a timely basis.
The key benefit of management accounts vs statutory accounts (ignoring the formatting of course!) is quite a straightforward one. They give the company the ability to be proactive rather than reactive. What is meant by this is that key positive areas or issues can be identified promptly rather than waiting 12 months for your year end accounts.
The key positive areas are:
- Areas of the business that are profitable
- Areas of the business that are loss making
With the above in mind;
- Are there any costs that can currently cut?
- Are there certain areas to focus on and increase the output?
- Do you need to generate additional funding to facilitate either of the above?
- What kind of funding will be available to your business?
So, how do projections in my accounts help my business grow?
Within management accounts packs, as touched upon on previous points, projections play a key part. If done correctly they can be used to estimate, reasonable and accurately, how the business will perform over the following 12 months or longer. These are normally based upon the previous year, and implementing any reasonably changes that can be expected. They implement any seasonal changes there may be, for example your business make majority of it’s profit in the summer – meaning you may come across cash flow issues in the winter.
With this information you can start implanting ideas to increase avenues of revenues over your quieter months, and plan ahead for any cash issues.
Have any questions about managing your accounts?
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