Are you a business owner or manager looking to grow your business? Are you using management accounts for this matter?

Management accounts are a great way to monitor your business’ finances and performance throughout the year.

In this article we look at what management accounts are, why you would use them, what it includes and when to use it.

Management accounts are financial reports to help managers make better decisions related to their business’ performance. These reports track several financial figures and provide insight into the financial health of a business.

They are often prepared routinely on a monthly or quarterly basis and are used by business owners and managers to help in the day-to-day and long-term strategic decisions.

In general, management accounts are similar to Year End accounts, but they are less formal and personalised to the user’s requirements.

Why use management accounts?

Management accounts are a useful tool for the following purposes:

Helping to grow a business

By having quality and up-to-date information on a regular basis, you will be in a good position to identify relevant trends and potential roadblocks in a timely manner. You will be able to steer the actions in the right direction and help to grow your business.

Better cash flow management

Effective management accounts should take cash inflows and outflows into consideration. It is vital to your business’ success to understand how much cash is available, what is due to come and what is required to meet outflows.

It will prevent putting unnecessary pressure on your cash flow. Alternatively, if you have excess cash, you may be in a position to take advantage of certain discounts when purchasing in bulk, for example.

Assist with tax planning

Management accounts are often used by tax professionals and accountants to predict a company’s potential tax liabilities.

Additionally, it can be used to check whether tax authorities have calculated the tax liabilities correctly.

Improve the audit process

Auditing is usually done once per year, while management accounts are produced more regularly.

Not only does this spread the workload throughout the year, it also helps to identify any issues as they arise rather than all at once during an audit.

Acting promptly on risen issues throughout the year, is usually faster and costs less than addressing them at the same time.

Report to and attract investors / lenders

Having up-to-date management accounts indicate that you as a business owner have a level of control and understanding over your business. This provides investors and lenders with confidence in both you and your business.

Furthermore, when looking to obtain financiers, you’ll be well prepared if you already have management accounts in place.

What is included in these reports?

Typically, management accounts include cash flow statements, profit and loss statements, balance sheet, an executive summary, KPIs and accounts payable and receivable reports.

Cash flow statement

A cash flow statement tracks the money flowing in and out of your business over the reporting period, often on a monthly basis.

It outlines the cash received for the period as compared to the previous period, the amount spent, any changes to the business’ cash reserves and the closing bank balance.

Including cash flow statements in your management accounts, helps to understand the cash flow and to manage your business finances more effectively. You will be able to see where your business makes money, how it is utilised and if there are any issues to keep the books balanced, you can identify it early on.

Profit and loss (P&L)

A profit and loss report is a key part of the business analysis process. It presents the company’s net income over the previous month or reporting period.

Comparing the net income with your business expenses results in determining your business’ profit. It allows for a clear overview of your company’s financial health.

The key difference with the cash flow statement is that the P&L shows the amount of money left over after all expenses have been paid, instead of only the in- and outflow of money.

Balance sheet

A balance sheet shows the financial standing of a company, by listing out the business’ assets, liabilities and equities.

You can easily see what you owe and what you own, helping you to make informed business decisions.

Executive summary

The executive summary highlights important aspects, such as the profit margins, turnover ratio or expenses.

Additionally, they may include the performance of different areas of a business to compare how the areas are doing compared to each other. This helps to identify which business parts are succeeding and which are underperforming.

Key Performance Indicators (KPIs)

KPIs are specific indicators that measure the performance of business objectives over the reporting period.

Together with the other reports, KPIs can reveal whether you are on the right track to achieve your short/medium/long-term business goals.

Accounts payable and receivable

Accounts payable indicate your company’s outstanding operating debt, while accounts receivable show the money owed to you by your customers.

Tracking your accounts payable lets you know where to direct funds first and plan your future payments.

Accounts receivable reports are especially useful when working with orders on a regular basis. It gives you an overview of your projected income for each month. Furthermore, you can see how long the balance has been outstanding and whether to get in touch with a late-paying client.

When to use management accounts?

Management accounts allow you as a business owner or manager to:

• better understand the business
• have accurate, up-to-date financial information on hand
• make informed decisions on the day-to-day basis and long-term strategies

External parties may also use management accounts. For example, tax accountants or auditors often request management accounts during an audit or when calculating the potential profits tax liabilities.

How HKWJ Tax Law can help

There are many benefits to use management accounts on a monthly basis (or quarterly at the very least). It helps to understand your business and how to further develop it.

However, compiling management account reports, checking them for errors and reviewing the information takes time and effort. It can cause a strain on your company’s resources.

Outsourcing management accounts management accounts allows you and your staff to keep focus on what you do best, while receiving quality information about your business.

At HKWJ Tax Law we can assist you with all your accounting matters, from bookkeeping to auditing – and providing management accounts.

Feel free to contact us to learn more about our services. We would be happy to understand your business model and needs, so we can partner with you on your journey to business growth.

The HKWJ Group is a one-stop holistic service provider and advisor to help your business grow. Within the Group, HKWJ Tax Law assists with financial administration, such as payroll, bookkeeping and accounting, as well as tax and legal matters. At Triple Eight Ltd, we provide a wide range of professional and corporate services, such as company secretarial services and company incorporation.