Management Accounts

What are Management Accounts?

It is a set of accounting data (Income statement, balance sheet, Cash flow) summarized, prepared and presented specifically for the management of the firm in order to provide key financial and statistical information to manager on time. This data help managers in taking short term and day to day business decisions.

Importance of Preparing Management Accounts

Management accounts are basically the financial statements containing information such as P&L a/c, balance sheet & cash flow statement. These financial statements help in calculation of net profit & loss, shows cash inflow & outflow as well as shows the real financial situation of the company. On the basis of these financial statements, it becomes easy for managers to take day to day business decisions quickly & easily. These statements are prepared on monthly or quarterly basis.

In order to arrive at a right decision, you need to read all the financial data as well as the information obtained from financial statements properly and it should not be incorrect unless the decision taken by you can go into a wrong direction.

The main challenge is that management accounts take much of your time and it is not been possible for you to read & digest the whole information if you are already busy in some other work. In case, these statements are prepared by your accountants, you still need to check all these information as a responsible owner of the company.

The time you spent in analyzing your financial statements will make you arrive at a favorable position in achieving medium and long term goals. It also helps you in making your business more efficient and profitable.

Advantages of Management Accounts

1. Management accounts provide you with up to date information which helps you in taking better decisions not only for today but also for tomorrow. For ex – With the help of management accounts, you can easily identify the products whose sales are dropping. It also helps you see operating margins, monitors sales volume and even help in managing your staff more efficiently.
2. It gives you more control over your business as it helps in identifying the latest sales trends by comparing the current & the previous year trading period or changes in volume of particular periods. It helps in identifying areas where you can optimize your cost & get the same result.
3. Management accounts not only help in quickly identifying the sales trends but also provide better information for planning growth, expansion or diversification.
4. It avoids critical cash crises situations & helps in improving the cash flow of your business with the help of cash flow forecasting.
5. It helps you & your accountant in planning and managing of tax liabilities. It also proves beneficial in lowering down your tax bill.
6. Regular preparation of management accounts helps lowering your year-end accounting costs. It deals with issues & queries on daily basis and resolves them immediately. Everything is done before rather than at the end of the year.