Management Accounts
Everyone has heard of a manager account, so everyone knows what it is. No, it can be the opposite, so let’s start with some explanation. Management accounts are financial statements prepared for business owners and managers, usually monthly or quarterly, typically a profit and loss statement and balance sheet. In principle, they are similar to year-end accounts but less formal and personalized to the needs of the user.
What are the advantages of keeping a management account?
Since management accounts do not have a fixed format, they are not required either. However, you should consistently produce them because they turn your financial performance data into actionable insights.
Here are some benefits of maintaining a regular management account:
Optimize your processes
Once you understand your cash flow, you can make the necessary improvements. For example, if a customer is late to pay, you can improve your collection process or make other credit decisions faster. If you know which customers pay regularly, you can develop loyalty programs and attractive offers to reward them.
Motivate for funding
A well-managed set of accounts supports your business plan and investors love to watch them. You can approach investors with confidence, ready to answer any questions they may have about your company's operations – while failing to ask any questions often results in a "" bye" quickly.
Plan for the future
Studying revenue and cash flow patterns means you can more accurately predict your future earnings or make provisions for bad accounts. You can even spot seasonal differences in cash flow so you can plan for slower months in the future. Studying revenue and cash flow patterns means you can more accurately predict your future earnings or make provisions for bad accounts. You can even spot seasonal differences in cash flow so you can plan for slower months in the future.
Monitor your growth
You can compare your management accounts monthly, quarterly or annually to accurately track not only your financial growth but also your performance. For example, looking at your receivables over time, have you shifted your customer base from late payers to on time payers?
Who uses management accounts?
⦁ owners/managers
⦁ investors
⦁ banks/lenders
⦁ factoring/invoice discounting
⦁ accountants
⦁ tax planners
Running a business without an account is like driving in the dark. You know how fast you're making wind noise and vibrations (your sales) but you don't know your direction (your profits) and you can't see the obstacles you're facing. imminent (cash shortage).
Most companies don't know their profitability, margins and trends. So why bother? The basic rule is that if you can measure it, you can improve it, so assuming you want to increase your profits, that's pretty much out of the question.
There are several key objectives in financial statements:
⦁ Measure past performance as a basis for improvement
⦁ Avoid cash flow and liquidity management problems
⦁ Have a vision for the future
⦁ Identify where to focus attention to improve profitability
The information provided by management accounts is designed to inform the performance of individual parts of the business and thus guide guide decision-making in the interest of the future performance of the business.
⦁ Measure gross profit percentage. It's basically the gross profit (sales minus direct costs) that you make from your service or product, divided by the value of the sale, excluding VAT. Armed with this information, you can check your performance against others in your industry. You can check trends over time and then you can take action to improve your profits
⦁ It imposes discipline on financial control and can detect bad behavior
⦁ It will tend to reduce accounting costs at year-end when information becomes better and easier to reconcile
⦁ Establish break-even point for profitable sales
⦁ Check, control overheads
⦁ Inventory control - measure trends, compare
⦁ Debtor control - measure trends, compare
⦁ Manage working capital turnover - securities, debtors and creditors
⦁ Change image effect on a bank's position
Use key performance indicators (KPIs) ) to get a quick look at what's going on
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