Business Garage continues our weekly #toptips for #bookkeeping series. Week two – management accounts.
Improving your internal financial reporting will give you greater control, allowing you to make decisions based on hard data rather than intuition. The ability to report accurately and frequently on your business’ performance and challenges can help forge stronger relationships with banks and other financial institutions, as well as allowing you to act fast and change tack if you need to.
Depending on the size of the business, management accounts can be produced monthly or quarterly. Here are some tips to help you get the best out of your management accounts:
- Selecting the right accounting software makes inputting and managing the information straightforward, not a chore. However, don’t be fooled into thinking that if you press the button to generate a P&L (profit and loss statement) that accurate figures will automatically churn out. There may be a myriad of accounting adjustments to be made: accruals, prepayments, journals etc. A good finance professional can help you with this.
- Keep your bookkeeping right up to date so that you can produce management accounts quickly after the month end, preferably within the following month. That way, you can assess business performance and make meaningful decisions based on timely information.
- Include a balance sheet – not just for a snapshot of your business’ assets and liabilities, but you will also need this for other purposes, such as securing investment or borrowing
- Get closely acquainted with your P&L to understand where and when profit is generated, and focus efforts on the most profitable areas of your business. Prepare a budget in the same format as your P&L by the start of each new financial year and refresh quarterly. Then, include an actual versus budget in your P&L to see which areas are adrift.
- Consider comparing the P&L for a specific period to the same period last year, especially if your business is seasonal. This allows you to track trends and react quickly if numbers are unseasonably low.
- Don’t forget that the profit figures are before tax.
- Include key performance indicators (KPI’s) such as gross profit margin or actual versus budget.
- If you are planning to grow your business, you will need to study financial performance and forecast accordingly. Can you identify possible barriers to growth? And therefore plan how to overcome these?
Business Garage can help you with management accounts. We work with clients across Oxfordshire, Berkshire, Thames Valley and London. Contact us on 01235 433099 for more expert guidance.