Management accounts are often overlooked in smaller enterprises, as they are not mandatory and are not required by HMRC. However, if you don’t already get regular financial updates, management accounts are well-worth speaking with your accountant about. They are an invaluable barometer of the financial health of a business, even for micro-businesses.
Management accounts are generally prepared monthly or quarterly and typically include a profit and loss balance sheet, cash flow statement and a brief report. However, they have no fixed format and can be adapted or enhanced to suit your precise business needs.
This financial snapshot includes all the key information you need to see, not only where your business is right now but, crucially, where it is heading.
Cashflow, cashflow, cashflow
Simply being aware of a looming cashflow problem won’t make it go away, but it will give you time to make contingencies. This could prove vital as unexpected and unsurmountable cashflow problems have floored even highly profitable, well-run businesses.
There may be trouble ahead
Having prior warning of potential trouble ahead gives you the time to consider some or all of the following options:
· Do your customers pay according to agreed terms? Are they all on the same terms? For example, some customers may need different arrangements, deposit payments or payment for materials up-front.
· What processes do you have in place to follow up on late payments?
· The same goes for any suppliers. Are they aware that you’re a small enterprise? Some companies have a different, more SME-friendly policy for good-paying smaller customers.
· Can you postpone making any necessary purchases until your cashflow improves?
Management accounts can also help you plan your tax liability and dividend transactions more accurately and confidently. For example, they could show when it would be a good time to take a dividend payment rather than a salary.
They also show trends that are especially useful if you’re in a business affected by seasonality. Not only is this good business practice from a financial point of view, but it’s also vital to help you plan for staff resources, supplies, and even when to take a holiday!
No more nasty surprises
As with most things in life, managing business finances is easier, more manageable and throws up fewer nasty surprises when it’s taken care of little and often. Although not required by law, management accounts ease the burden at the year-end and could even help reduce your annual accountancy bill!
We don’t like to dwell on the prospect of uncovering financial malpractice, but it does happen. Preparing regular management accounts means there’s less opportunity for financial irregularities to go unnoticed and limits any damage to the business.
Any size of business will benefit from having a chat with a professional accountant to establish which services meet mandatory requirements and which will help you run the business more effectively. Every company wants to make the most of any growth potential, and regular management accounts is one way to achieve that.
3-point guarantee
Rackhams offers management accounting services to all business customers with the same 3-point guarantee:
· Risk-free. Meet every HMRC deadline without penalties
· Fixed-fee contract. A complete and transparent pricing structure
· Unlimited support. Enquiries answered within 24 hours
If you’re ready to move to professional accountancy services, book a free consultation on 01482 631700 or visit https://www.rackhamsaccountants.co.uk/contact-the-team/
