The primary function of Management Accounts or Management Information is to enable Directors or senior managers within the LATCO to make quick informed decisions. There should not be any need to wait for your statutory accounts to be filed to find out how the business is performing.
There is no set format for Management Accounts and as such they can mean many things to many people. The type of information that you can include will depend on the type of market the LATCO is trading in and at what stage the business is at during its lifecycle.
Reviewing the LATCO performance on a regular ongoing basis means that there shouldn’t be any surprises that could unravel your business, whether it be decreasing profit margins, increased staff costs or cashflow issues. Equally, if the LATCO is making higher profits than expected this may allow for dividend planning, tax planning or capital re-investment back into the business in order to sustain future growth.
For many it’s a simple Profit and Loss report, but Management Accounts do not have to be just financial and can include anything that may provide information that will help make good business decisions. Many include key performance indicators such as turnover, bad debts, gross profit percentage, but they can include reports on staff sickness, customer ratings, website performance and cashflow.
Reviewing of the financials on a regular basis has further benefits other than management decisions. It helps ensure that all the data is up-to-date and correct, regularly enabling queries to be resolved soon after month end rather than leaving queries until the preparation of the year end accounts. Resolving queries a few weeks after they happen is so much easier than waiting until the year end accounts are being finalised which could be 12-18 months after the transaction has taken place.
In order to get the financial aspect of the management accounts correct, it is imperative that bookkeeping is processed in a timely, efficient and accurate manner. This has to be done in a way that records the information required both from a compliance and regulatory perspective but also keeping management accounts in mind.
Designing and implementing these processes to be easy and also robust can be difficult but there’s normally a simple fix. It’s a lot easier nowadays than it used to be with the introduction of cloud-based accounting software being easily accessible and, on the most part, affordable. Technology currently plays a big role streamlining processes and will continue to do so in the future.