Dean McCormack of Rickard Luckin shares his thoughts on how your family business can benefit from management accounts.
Every business needs to produce an annual set of accounts, but there are two key reasons why an in-depth financial view of business performance needs to happen more than once a year.
Firstly, by definition your annual accounts happen once a year and are backward looking – telling you what’s already happened. Secondly, if you are only assessing your financial performance once a year, your ability to take corrective action based on accurate and up-to-date information is limited. This is where management accounts can help.
How can management accounts help your business?
Management accounts provide senior management with an accurate and up-to-date picture of what is happening in the business on a month-to-month basis, tracking key metrics that are most important to the business. They act in a similar way to how the dashboard in a car tells you how much fuel is in the tank, how hot the engine is running and any warning signals that trigger the need for action by the driver.
Here are three ways in which management accounts can help your business:
1) Monitor progress and take corrective action
If you know exactly what is happening in your business on a monthly basis, you can take action to improve the key metrics on a more frequent basis than through looking at annual accounts alone.
For example, regularly updated management accounts will show you which of your products or services are the most (and least) profitable over time – and which are actually losing money.
You will be able to highlight any variances in business performance, such as seasonal fluctuations, and if you operate from more than one site, you will be shown which are the most profitable. You will be more easily able to identify and correct issues of under-performance.
Insights can also be developed to show whether it could be more profitable to manufacture particular items in-house, or outsource the process to a third party.
2) Secure external investment
Up-to-date management accounts also provide a level of insight and transparency into your business that banks and external investors will appreciate. Showing them how your business is performing now, not in your last set of published accounts, will give them the confidence they are looking at the true underlying performance of the business.
3) Support long-term business strategy
If your business is embarking on a specific project that requires high levels of investment, a robust set of management accounts will help you analyse its expected rate of return and how long it will take for your project to break even.
When considering a sale of the business, a set of accurate and updated management accounts will help potential future investors or buyers to assess the true value of your business.
Building your dashboard
At Rickard Luckin, our team of experienced management accountants works with companies from diverse industries and company sizes, to provide a range of services that are bespoke to each client. When driving your business forward, the dashboard is more important than the rear view mirror.
To discover more about how management accounting can help drive your business forward, please don’t hesitate to get in touch.