What is Management Accounts?
Management Accounts is a comprehensive process which measures performance using financial data. They help you to make decisions about the direction you want to take with your business or highlight areas you can improve. It’s an invaluable tool for growing any business.
Is it a legal requirement?
Management accounts are for internal use and they are used by Directors / Managers. There is no legal requirement to have them but they are extremely useful to help you make meaningful management decisions about your business.
How does it work?
You have a lot of data about what goes on in your company – sales, expenses, debt figures, stock levels. Management accounts are a way of taking that data, analysing it to make sense of how it all fits in and producing a report for improvements or using it as a measurement tool for performance.
Different businesses will have different management accounting needs, depending on the business areas that are important to them. Let’s take an example of how Management Accounts can work for a business in the manufacturing industry.
A manufacturing company who operates 24/7 have seen a significant decrease in sales.
Management accounts were produced which showed that it was down to productivity. The amount of products being produced on a daily basis was significantly less than the previous 6 months. There seemed to be no rhyme or reason for the business owner – there hadn’t been any staff changes or new products launched. So why were they being less productive?
By analysing the management accounts further, it was found that the drop in productivity happened at night on two specific nights. Again, there seemed to be no reason as to why it should be less productive – they had all the stock they needed to produce the products and the staff were experienced and there wasn’t any staff reduction.
An impromptu visit to the site in the middle of the night shift explained it. The staff were there but they had started a poker tournament so therefore they were not producing as many products as they should.
The business owner handed the issue to HR who amongst other things, put in place a stronger Manager and their productivity increased three-fold (more than even before the poker games!)
It’s an extreme example but would they have found out about this without the help of Management Accounts?
Do I really need Management Accounts?
Ask yourself the following questions:
- Are you looking to grow your business?
- Have you experienced a drop in sales / productivity?
- Do you find it difficult to track sales and expenses?
If you answer, yes to any of the above then you would benefit from Management Accounts.
How can Tidy Numbers help you?
- Produce your Management Accounts for you
- Set up internal systems to help generate the information you need
- Interpret the information for you
- Produce a report with suggestions to improve / grow your business.