The advantage of management accounts for business planning.

Management accounts are regular financial reports that provide up-to-date insights into your business’s financial dynamics and performance.

Unlike long-term annual statements, these monthly or quarterly reports offer a current view of your company’s financial position.

Plus, they’re far more customisable. Management accounts go beyond basic profit and loss figures, often including cash flow analysis, key performance indicators (KPIs), and trend data specific to your business.

Let’s explore management accounts and how they can enhance your business planning.

What are management accounts?

At their core, management accounts are regular financial reports designed specifically to aid in managing your business.

Unlike annual statutory accounts, which primarily serve tax, compliance, and legal purposes, management accounts are flexible, frequent, and focused on helping you guide decision-making.

Typically, these reports include:

1. Profit and loss statements
2. Balance sheets
3. Cash flow forecasts
4. Key performance indicators (KPIs) specific to your industry

The beauty of management accounts lies in their customisation:

• If you do a lot of one-time contracts, they can focus on project profitability.
• You can build breakdowns based on department performance if you have multiple departments.
• You can segment accounts based on different product categories if you’re running an eCommerce business.
• Running a subscription business? Break down the numbers based on customer acquisition costs, churn, and customer lifetime value (CLV).

You can build management accounts with practically any variables, KPIs, etc., you like.

Once they’re set up (usually in accounting software like Xero, Sage, or QuickBooks), it’s mostly a matter of ensuring your financial data feeds into the accounts and that the calculations are correct.

The power of timely financial insights

Timing can make or break business decisions. Management accounts allow you to identify trends, pinpoint issues, and seize opportunities rapidly, which could prove decisive.

Consider this scenario: You run a retail business that’s been steadily growing. Your annual accounts show a healthy profit but don’t tell the whole story.

By implementing monthly management accounts, you notice that while overall sales are up, profit margins on your best-selling product line have steadily declined over the past quarter.

This timely insight allows you to investigate immediately. Your main supplier has gradually increased prices, eroding your margins. Armed with this information, you can:

1. Negotiate better terms with your supplier
2. Seek alternative suppliers
3. Adjust your pricing strategy
4. Explore cost-saving measures in other areas

Without management accounts, you might not have identified this trend until it had impacted your annual profits. By then, you would have lost months of potential action.

Sharpening your cashflow management

Many businesses – up to 82% in some studies – fail due to cashflow issues.

Management accounts offer a powerful lens for monitoring and managing cash inflows and outflows over time. By providing regular insight into your cash position, these reports help you:

• Predict and prepare for lean periods
• Identify opportunities to improve cash collection
• Make informed decisions about major purchases or investments
• Spot early warning signs of cashflow problems

Uncovering profit patterns

Profitability is often less linear than it might seem at a cursory glance. A product or service that seems successful might be eating into your margins when all costs are considered.

They help you dig deeper into your profit patterns, breaking down profitability by:

• Product or service lines
• Customer segments
• Geographical areas
• Sales channels

These figures allow you to focus your efforts on what drives profit in your business. You might discover that your highest-volume product is your least profitable or that a particular customer segment yields the best returns.

Budgeting with precision

Management accounts provide the feedback loop necessary for effective budgeting.

By comparing your actual performance against your budget regularly, you can:

• Identify areas where you’re overspending or underspending
• Adjust your forecasts based on real-world data
• Set more realistic targets for future periods
• Allocate resources more effectively

This iterative process leads to more accurate budgeting over time, helping you confidently steer your business.

Implementing effective management accounts

While the benefits of management accounts are clear, implementing them effectively requires thought and planning. Here are some key steps:

1. Identify the metrics that matter most to your business
2. Set up systems to collect and analyse data efficiently
3. Establish a regular reporting schedule (monthly or quarterly)
4. Allocate time to review and discuss the reports
5. Use the insights to inform your decision-making and planning processes

Empowering your business

All in all, management accounts provide a clear, transparent, objective analysis of your business.

When set up and executed correctly, they deliver insights that can sharpen your strategy, improve your decision-making, and drive forward success.

At Fairman Keable, we can set up and optimise accounts that cut through the complexity and deliver actionable insights.

We’ll also help you interpret and apply the data to your business challenges.

Curious to learn more? Contact Fairman Keable today, and let’s start turning your management accounts into business success.