The Benefits of Management Accounting: Why Every Business Should Use Management Accounts

 
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The Benefits of Management Accounting: Why Every Business Should Use Management Accounts

Published: 3 July 2023

The Purpose of Management Accounts

Insightful management and financial information is crucial for effective decision-making in business. Gut instinct or intuition alone is never enough – the best business decisions are based on fact. Management accounting plays a vital role in providing directors with a deep understanding of financial performance, allowing them to make successful strategic plans. This article explores the benefits of management accounting and why every business should prepare monthly management accounts for review by the directors and senior managers. We will also examine the differences between management accounts and financial accounts, and the significance of including a detailed review of management accounts during board meetings.

What Are Management Accounts?

Management Accounts are financial reports prepared for internal use by management within a business. Often referred to as MI (Management Information), management accounts provide business owners and their management team, including CFOs (Chief Financial Officers) and FDs (Finance Directors), with valuable insights into the financial performance, position, and cashflow of the business. Management accounts include a Profit & Loss (P&L) report, Balance Sheet, and Cashflow, each presented against a predetermined budget . It is good practice to review both the month in question and the financial year-to-date position to ensure business performance remains on track throughout the year.

Benefits of Management Accounts

Management accounts bring numerous benefits to a business and are vital for every successful business. Below are some of the main benefits:

  • Improved Decision-Making: Management accounts provide up-to-date, accurate, and relevant financial information to key decision-makers. By understanding the financial implications of different choices, managers can make informed decision that align with the company's objectives. This helps in identifying opportunities, mitigating risks, and maximising profitability.
  • Cost Control and Efficiency: Management accounts enable businesses to identify cost drivers and areas of inefficiency. By closely monitoring costs , businesses can implement strategies to reduce expenses, improve operational efficiency, and enhance profitability .
  • Performance Evaluation: Management accounts provide a comprehensive picture of the company's financial performance, allowing managers to evaluate the effectiveness of various strategies, projects, or departments. This evaluation helps in identifying areas that require improvement, streamlining operations, and enhancing overall performance.
  • Budgeting and Forecasting: Management accounts are instrumental in the budgeting and forecasting process. By analysing historical financial data, businesses can set realistic financial KPIs, allocate resources effectively, and make accurate projections for future growth. This aids in strategic planning and facilitates timely adjustments to achieve desired outcomes.

Key Roles in Management Accounting

For businesses considering implementing management accounts, it is important to understand the key management accounting roles:

  • Bookkeeper / Accounts Clerk: Accurate management accounts start with competent and diligent bookkeepers / accounts clerks who enter transactions into the accounting system. It is essential that these individuals are properly trained and understand the importance of accurate data entry.
  • Management Accountant: The Management Accountant is responsible for preparing the management accounts, analysing financial data, and providing insights to the management team. They play a crucial role in interpreting financial information and supporting strategic decision-making.
  • Finance Director (FD) / Chief Financial Officer (CFO): The FD or CFO oversees the financial operations of the business, ensuring that the management accounts are used effectively to drive performance and achieve strategic objectives. They provide leadership and guidance to the finance team and the wider organisation.

At Secantor, we offer Virtual Management Accountant services to support your business in producing accurate and insightful management accounts. Our experienced professionals work closely with your team to provide the financial clarity needed for informed decision-making.

Additionally, our Fractional Finance Director services offer strategic financial leadership on a part-time basis, ensuring that your business benefits from high-level expertise without the cost of a full-time appointment.

To learn more about how management accounts can benefit your business, or to discuss your specific needs, please contact us for a free business review.