Is Management Accounting The Right Choice For You?

Management accounting provides a monthly or quarterly overview of your business’s current situation. A set of management accounts will usually include a profit and loss for the current month, as well as a profit and loss for the year to date. Most sets of management accounts will also provide a balance sheet, and sales and purchase ledgers, which are a great way to keep track of who owes you money, and what you need to pay. There are two main scenarios where management accounting could be the answer for you.

Why A New Business Should Consider Management Accounting

Let’s start with a new business. You think you have a great idea for a business. You put everything in place to get it started. This can take months of hard work and preparation, as you could need to find shop premises if you are going into retail, or a factory if you will be manufacturing. Maybe you are starting an online business which could entail setting up a website and being able to accept payments, among other things.

Before you even start you will need to market your business, either with ‘Opening Soon’ notices if it’s a shop, or maybe through social media if it’s online. You will hope to make sales straight away, but that will not happen if no one knows about your new venture.

From day one you will want to know if you are making money, or if you are making errors that are costing you. The problem is your accounts are not due for 12 months, and it would be beneficial to know now.

You could be fooling yourself into thinking you must be making a profit because there is some money in the bank. Then you have to ask yourself how much of your money you owe out, suppliers, overheads, and a growing tax liability will all need to be considered. Have you purchased any large pieces of equipment, or vehicles that will have lost value now they are second hand? That loss in value is all part of your profit or loss. Do you have any hire purchase or lease agreements?

Maybe you have no money, creditors to pay and debtors that owe you. In this situation you really could be clueless about your profitability, and be ready to give up. Maybe you have enormous amounts of stock and you need to reduce it to pay your creditors. These are all different problems that can occur when running businesses, but you may not be aware of them if you have never been your own boss before.

Management accounting is the answer. Having management accounts prepared monthly or quarterly will give you a much better idea of how your new business venture is progressing, and give you time to correct any mistakes before they become even bigger problems. You will be in a better position to make correct decisions when you are aware of the true facts and figures relating to your business.

Management Accounting For Existing Businesses

Just because your business has been running a few years does not mean you would not feel the benefit of management accounting. You must be used to waiting for your accounts once a year, and being disappointed or pleased with the outcome. How much better it would be to know more often how things are going, and if something is going wrong you will know all the sooner. It could work the other way too. If your profits jump higher than you expect them too, it’s better to be pre-warned about a larger tax bill.

The situation could arise where you want to expand and need help from your bank or another financial institution. After the crash of 2008 lenders are much more wary about who they give money to, and they certainly will not want to wait 12 months to see if their cash injection has worked.

Management accounting is the answer. Provide them with your figures on a monthly or quarterly basis, and they will be much happier and are more likely to leave you to get on with what you do best, running your business.

Is Management Accounting Costly?

What you need to remember about management accounting is that any work done to prepare your more regular figures for you doesn’t have to be done again at your year-end. At Kane Bergin & Company, if you use our bookkeeping services, we use those records for management accounting. If you prepare your own books, then we do whatever is necessary to put your management accounts together from them. Any cost is far outweighed by the advantages of having quality information every month or quarter.

Many people do not realise how important good accounting is for any business and brush it aside thinking they will get to it one day. Successful business people never think like this. They are aware that information is vital for the correct decisions to be made, which in turn helps to make your business a success.

Using The Information

When you understand the finances of your business on a more regular basis, this opens up other opportunities for you. If some stock comes along at a good price, you won’t be wondering whether you can you afford it, you will know if you are able to or not. There could be the chance to purchase a piece of equipment you need, but is anyone going to advance you the money against last years accounts when it is nearly the end of the following year?

If your profits are looking healthy, you may need some financial planning to make sure the taxman does not get more money than necessary from you. This sort of advice is better within the financial year, rather than waiting until it is too late. There are some tax savings that must be carried out within the year they relate to, not afterward, and leaving this till after your year-end could mean you miss out on the tax advantages.

There are numerous uses for management accounts, but most of all they can give you peace of mind about your business.

If you would like to know more about how Kane Bergin & Company can help you with any accounting matter, give us a call today on 01 969 6306, or message us and we will get in touch with you.