There are important financial statements in every business including the profit and loss (or income) statement, the cash flow statement, and the balance sheet. Together, these documents provide important numbers and a snapshot of your finances.
To get the most out of these figures, many companies also produce management accounts – an in-depth analysis of the data. Management accounts aren’t mandatory – and there’s no fixed way to do them. But they’re invaluable.
For small business owners, book-keeping and accounting falls under the category of ‘necessary evil’. It’s a job that has to be done (or most likely outsourced) to meet your obligations.
Management accounts are a set of financial statements prepared either monthly or quarterly, which provide clear insight into the financial trading position of your business.
They aren’t required by law, and they don’t have to be filed with HMRC – but they’ll put you more in control of your finances than ever before, supporting the growth of your business.
Management accounts for small businesses typically include a profit and loss account, balance sheet, cash flow statement and a short report. You can put the accounts together yourself, or more realistically, an accountant can do it for you.
If you’re using a cloud accounting package like Xero, it’s easy to supply the necessary information to your accountant so they can produce the management accounts on your behalf.
Management accounts can:
Management accounts help you spot cash-flow problems before they happen, and help you analyse the money going out of your business. Could you cut your outgoings? Are you getting good value from your suppliers? Total business costs are of little value when managing a business – you need to know how and where that money is being spent.
With up-to-date information available each month, you can plan tax and dividend transactions with greater confidence. Management accounts for small businesses can help maximise the potential benefits of paying dividends rather than salary.
In addition, a regular review of your business finances means there’s no place to hide for malpractice.
Having regular management accounts produced reduces the amount of work required at year end, normally reducing the cost of producing your annual accounts.
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