If you own a Limited company, you will be familiar with the need to file accounts. Financial accounts are annual reports required to meet statutory obligations, such as filing with Companies House and supporting tax return submissions. These accounts are backward-looking, reflecting the past financial year, and must adhere to strict accounting standards and regulations.

Characteristics of Financial Accounts:

• Compliance: They ensure your business meets statutory requirements and regulatory standards.
• External Use: These accounts are primarily for external stakeholders like shareholders, regulatory bodies, and funding providers.
• Historical Data: Financial accounts are based on historical data and are typically filed several months after the end of the financial year, making them less useful for current decision-making.

To harness the full potential of your numbers and accounting information, it is critical to also produce management accounts at more regular intervals throughout the year.

What are Management Accounts?

Management accounts are regular reports, typically generated monthly or quarterly, designed for internal use by business owners and directors. These reports provide the most up-to-date financial and operational information, including key performance indicators (KPIs) and other critical metrics.

A typical set of management accounts would include:

• A profit & loss account by month, with comparisons to previous periods
• A profit & loss account compared to forecast and an explanation of variances.
• Amounts owed to you.
• Amounts you owe, including estimated tax liabilities.
• Gross profit and net profit margins.
• Liquidity ratios to confirm the business’s ability to meet all its liabilities from its available cash.
• Operational performance indicators, such as sales volumes, lost clients, down time, customer complaints to name a few.

Although based in numbers, a good set of management accounts will provide narrative insights as well as visual graphs and trend lines for ease of interpretation and use by all stakeholders.

Benefits of Management Accounts:

• Goal Setting and Tracking: They help set and track goals. For instance, if your company aims to increase sales over a year, management accounts allow you to measure actual sales against targets monthly. This way, you can adjust strategies in real-time to stay on track.
• Informed Decision Making: By comparing current performance to planned or forecasted performance, you can make informed decisions that drive growth and improve efficiency.
• Proactive Issue Resolution: They enable you to spot and resolve issues before they become significant problems.
• Proactive planning for taxes: They enable you to predict tax liabilities well in advance, allowing you to save and ring fence monies needed to meet these tax liabilities.
• Operational Control: Management accounts provide a clear view of your business’s financial health, aiding in strategic planning and operational control.

While financial accounts are essential for compliance and external reporting, they do not provide the timely information needed to manage and grow your business effectively. Relying solely on year-end accounts can leave you with outdated information, limiting your ability to respond to current challenges and opportunities. Regular management reporting enables proactive decision-making and goal achievement.

Do You Have Management Accounts in Your Business?

If not, we can help! Our management accounting services provide the tools and insights you need to drive growth, make informed decisions, and avoid surprise tax bills. Working together we can ensure your business reaches its full potential!