Imagine reaching the end of the financial year only to discover that your business’s financial health isn’t what you thought. Or maybe you’re not even finding out until six months after your year end when your accountancy firm has done something to the figures… and what did they do to get to that number?? Perhaps you keep getting unexpected surprises during the year that you hadn’t planned for. For many SMEs and micro companies, this scenario is all too familiar. It can lead to stress, questioning past decision making, frantic last-minute strategies. The culprit? A common oversight in the SME world: underutilising—or completely ignoring—management accounts.
What are Management Accounts?
Management accounts give you a real-time financial snapshot of your business’s financial health. Unlike your year-end financial statement which look backwards, management accounts look at now, and they look forwards.
Management accounts are built up based on information from across all areas and functions of your business – all departments feeding into a common platform to build up a complete picture of how your business is performing.
- They report back to you key information on areas that are important to you and in a way that allows you to use the information to make decisions.
- They build up reliable information which can be referred to in the future, giving you comparatives which you can benchmark yourself against.
- They allow you to plan for the current year and future years with a better level of accuracy.
- They help your business to achieve its financial objectives.
Having timely information of your financial position leads to better decision making, spotting opportunities, and helping to avoid problems.
So why don’t all SME’s produce them?
Many SMEs either aren’t aware of the benefits of management accounts or believe they’re a luxury reserved for bigger businesses.
They may not think an additional headcount can be justified or line managed.
Some are put off by the perceived complexity or cost.
Perhaps the management team have done without them for so long, they just don’t see the need.
Some just don’t feel very enthusiastic about an accountant prodding and poking around their business.
Transform Your Business with Management Accounts
The truth is, management accounts are a critical tool for businesses of all sizes, and they will improve the likelihood of your business achieving its financial targets.
They will help you to avoid problems, like cashflow issues, or unexpected accounting adjustment.
You don’t need to hire a full-time accountant, so it doesn’t need to be costly.
It shouldn’t be complicated. You know your business better than anyone, and management accounting just translates operation performance into financial performance.
Whilst its highly likely that you’re doing a reasonably good job of managing the finances so far, having management accounts gives your business a single source of the truth which provides your business with future-proof resilience.
And a good management accountant will be commercially focused and, dare I say it, not act too much like an accountant. They should have the knowledge, but the tail shouldn’t wag the dog.
Implementing management accounts can revolutionise the way you do business. Here’s how:
- Informed Decision-Making: Real-time financial data allows you to make decisions based on current business performance, not last year’s figures.
- Spot Issues Early: Regular financial reviews can help identify potential problems before they escalate.
- Strategic Planning: With a clear understanding of your financial position, you can plan for growth, investment, and diversification with confidence.
Implementing Management Accounts in Your SME
Starting with management accounts doesn’t have to be daunting. Here are a few steps to begin:
- Understand Your Needs: Identify key areas of your business where real-time financial data could be most beneficial.
- Use Technology: Leverage software solutions designed for SMEs to streamline the process.
- Seek Expertise: If the process seems overwhelming, professional services that offer tailored management accounting support can be a game-changer.
Conclusion
Management accounts are more than just numbers on a page; they’re a tool for helping you to achieve your business plan. They’re the silent business partner you didn’t know you needed—until now.
With over 15 years of management accounting experience in SMEs and multinational PLCs, I’ve seen first-hand how management accounts can help improve a business’s performance and shield against potential pitfalls. My approach is hands-on, getting under the skin of your business to ensure that the solutions implemented are tailored to your operations. If you think your business might need to implement or improving its management accounting function, then I’d love to hear from you and I’d be happy to give some free and impartial advice. If you need more regular in-depth input, please get in touch and we can discuss a consultancy basis approach that suits your requirements and budget.