What Are Management Accounts?
(& Why Do You Need Them)

One of the cornerstones of a successful business is accurate, actionable data. Forewarned is forearmed, and this is no less true for businesses, whatever the industry. A business that makes data collection a habit is more flexible, more resilient, and more likely to seize growth opportunities. Management accounting is one method that can help collate important data, one that can ensure your business has the information it needs to properly plan for the future.

In this article, we will discuss management accounting, what benefits the practice can offer, and how you can create your own set of management accounts.

What are management accounts?

Management accounts, or management accounting reports, are accounts used to provide a company’s management with a set of data and information regarding financial performance. Management accounts are typically prepared frequently, either quarterly or monthly, to help a company’s management keep a firm grasp of their financial position, while also informing future business strategies. Whether the data paints a good picture or bad, management accounts can help a business act in its best interests, rather than acting on guesstimates.

Is there a difference between management accounts and statutory accounts?

While certainly similar, management accounts and statutory accounts are two distinct reports. Statutory accounts, also known as financial accounts, are a legal obligation, requiring companies to file financial documents with tax authorities each year. Statutory accounts do use much of the same information as management accounting reports, but this information is only used by external entities for legal reasons.

Management accounts are useful in a broader sense, often taking in or leaving out data as required by the business in question. Unlike statutory accounts, they don’t need to conform to a particular standard or layout. Additionally, management accounts are not a legal requirement, nor will they be subject to audits. If you choose to create management accounting reports, you can be as detailed, disordered, or broad as you like. Management accounting reports are meant to inform you and your fellow company owners, not help an auditor check a box for tax compliance.

What are the benefits of management accounts?

Management accounts help you get a solid grasp of your company’s finances. A thorough management accounting report can show you your company’s financial performance, from a broad overview to granular specifics within each of your company’s departments. With this information, you’ll be much more responsive both in terms of solving problems and seizing opportunities. This is the end goal of all management accounting reports, and is reached through the benefits of the practice. These benefits include the following:

• Solid future planning – Planning for the future requires a solid foundation of data. The adage of “garbage in, garbage out” applies to financial planning just as it does programming, and can easily cause serious problems for a business. Bad data can lead to problems going unresolved, unprofitable areas of a company draining resources, and opportunities to expand left unnoticed. Management accounts shine a light on all of these problems and potential positives, helping your company in the long run.
• Accurate risk assessment – By providing extensive data on your company’s performance, you can easily spot high-risk areas. In doing so, you can improve your risk assessment and response, ensuring your company isn’t caught off-guard by financial issues.
• Plot paths to business growth – Just as good data shines a light on upcoming problems, it shines a light on growth opportunities. Management accounts can show you areas of your company experiencing strong successes, allowing you to focus on what works.
• Persuasive to creditors – Having rigorous and organised management accounts can be quite appealing to creditors. Not only do they know precisely where your company stands financially, but they also see an encouraging practice of good record keeping and diligence. These two factors can help you secure finance when your company needs it.

What information do I need for management accounts?

Management accounts look different from company to company. They are usually customised to fit the needs of the business in question, which may want to focus on one particular area or collect broad data points spanning the entire company. Your accountant can help you decide what data would be best to focus on, but there are common data points that are useful to most businesses. These are as follows:

• Balance sheet – Including your company’s balance sheet in your management accounting report gives you a solid overview of its financial position. You’ll have an at-a-glance look at company assets and debts, showing you whether it is solvent or insolvent.
• Cash flow – Having an idea of what’s going in and out of your company accounts is vital to any business plan. While it isn’t the sole factor, a cash flow statement shows whether your company can pay its debts, keep up with stock purchases, and what remains after obligations are met.
• Profit and loss – A profit and loss statement is one of the most important statements a business can keep on record. It clearly shows your company’s revenues and expenses over a given time and, most importantly, shows whether or not you’re in the black.
• Sales reports – While not necessarily essential, including a sales report in your management accounting report is often valuable. It can highlight your company’s successful products or services, showing you a good idea of prudent areas of investment.

You can include plenty of other records and data points in your management accounts, ranging from a variance analysis to an inventory report and beyond. While packing every detail possible into your report can be useful, it can just as easily clog your report and make actionable data less obvious. As such, it’s a good idea to include your accountant in the report’s creation, or enlist the services of an accountant if you haven’t already.

How can I produce management accounts?

Producing management accounts can be as simple or complex as you’d like. Put simply, it’s the collection of various reports and data points that help you paint an accurate picture of your company’s financial position, while also giving you the means to plan future action. If you have a clear idea of what information you need to know, this can be an easy task to accomplish, if you have an evening to spare for document reading.

Producing management accounts can be much more complex if you aren’t sure where to start, or your company has more moving parts than you can count. Throwing together a bunch of reports can, at best, be a time-consuming endeavour, and, at worst, leave you with a lot of words and numbers that ultimately say nothing. If you want your management accounting report to give you actionable information, you need to do it right.

A good management accounting report needs a strong foundation. While having a clear vision of what you want to know isn’t always possible, it certainly does help. However, it is possible to develop an idea as the process goes on, especially if you start by collecting core financial data. This includes revenues, expenses, assets, debts, and expands to anything else that affects your company’s finances.

Once you’ve collected your company’s financial reports, the next step is to parse the information. You should organise the data according to importance, making it easy to analyse and read once the report is finished. During this process, you should also ensure the data is accurate, as any flaws in fact statements can cause the entire process to be pointless at best, and harmful at worst.

With the data organised to your liking and checked for accuracy, the final step is to make it presentable. Good data locked behind obtuse wording or complex layouts can be difficult to uncover, possibly creating an unnecessary hurdle that limits the report’s effectiveness. If you can get good, accurate data organised in accordance with your business’s priorities, presented in an easy-to-read format, you’ll have a perfect management accounting report.

When should I produce management accounts?

Management accounts can be prepared as often or infrequently as you like, though most companies favour a monthly or quarterly approach. These timeframes offer a company’s management a suitable amount of time for data to become available, while not leaving it so late that it becomes obsolete. However, you can produce management accounts over a longer or shorter timeframe if you would like.

Can I prepare management accounts personally?

It is entirely possible for a company owner or another shareholder to create management accounts. There is no legal framework to follow, nor will the accounts be checked in an audit by an external authority. As such, company owners are free to produce their management accounts however they like, if at all.

While creating your company’s management accounts personally is possible, it isn’t always the best idea. Management accounts can be easy enough to prepare for owners of small companies, assuming they have simple records and the time to spare, but anything beyond can quickly become difficult. Company accounts rapidly increase in complexity as a company grows, and it can be difficult to juggle both your duties as an owner and the preparation of the accounts. Oftentimes, doing so simply takes too much time, decreasing the overall accuracy of the report or making it obsolete. To avoid this issue, it’s usually best to bring in an accountant to tackle the paperwork for you.

Should I use management accounts for my business?

Management accounts provide any company with the strongest advantage of all – accurate information. This information can be used to draft solid plans, point out strengths and weaknesses in your company, and much more. As a result, maintaining your company’s success and achieving your growth goals are made much easier. For this reason, making use of management accounting is a great idea in the vast majority of cases. If you have the time, or the services of an accountant, management accounting can doubtless be a benefit to your business.