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Management Accounts

Management accounts are invaluable in helping you to make timely and meaningful management decisions about your business. They are the financial reports that business produce to help make the decisions that run the company. Some of the areas they cover include:

• Cash flow – working out how much free cash you have in the company for investment, recruitment, purchases and general financial management
• Profit - calculating in advance how much profit your business will make and how much tax you will face.  Important investment decisions are made on the results of management accounts
• Working out trends – understanding and bringing to attention the detail of what areas of sales are rising or slowing, where money has been spent on costs and goods and even working out what future demands there will be for products and services
• Costings – work out exact costs of a business function or a division and reporting the figures to the decision makers
• Valuations – recording the costs and value of assets employed by the business and how much depreciation has taken place

There is no legal requirement to prepare management accounts, but it is hard to run a business effectively without them.  Management accounts analyse recent historical performance and usually include forward-looking elements.  Analysis is usually performed against forecasts and budgets that have been produced at the start of the year.

Budgets and business planning

New small business owners may run their businesses in a relaxed way and may not see the need to budget.  However, if you are planning for your business' future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.

If your business is growing, you may not always be able to be hands-on with every part of it.  You may have to split your budget up between different areas such as sales, production, marketing etc.  You will find that money starts to move in many different directions through your organisation - budgets are a vital tool in ensuring that you stay in control of expenditure.  A budget is a plan to:

• control your finances
• enable you to make confident financial decisions and meet your objectives
• ensure you have enough money for your future projects

It outlines what you will spend your money on and how that spending will be financed.  However, it is not a forecast.  A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by your plan - that your business wants to achieve.

Benefits of a business budget

There are a number of benefits of drawing up a business budget, including being better able to:

• manage your money effectively
• allocate appropriate resources to projects
• monitor performance
• meet your objectives
• improve decision-making
• identify problems before they occur - such as the need to raise finance or cashflow difficulties
• plan for the future
• increase staff motivation

Nasa Consulting provides management accounts for a range of companies.  The first steps of the process are to sit down and determine exactly what is needed by the decision-makers of the business and then to plan and execute the delivery of information that those key personnel require.  Usually we then hold regular meetings or reports with our clients as an essential part of their finance team.  Please contact us for further information.

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