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Managing Business Finances - Overview

Managing your business finances is crucial to the success of your business.

Management accounts are invaluable in helping you to make timely and meaningful management decisions about your business.

Different businesses will have different management accounting needs, depending on the business areas that are important to them. These can include:

* the sales process - including pricing, distribution and debtors
* the purchasing process - including stock records and creditors
* a fixed asset register
* employee records

There is no legal requirement to prepare management accounts, but it is hard to run a business effectively without them. Most companies produce them regularly, for example on a monthly or quarterly basis.

Management accounts analyse recent historical performance and usually include forward-looking elements such as sales, cashflow and profit forecasts. The analysis is usually performed against forecasts and budgets that have been produced at the start of the year.

The information in management accounts is usually broken down so that the performance of different elements of the business can be measured. For example if a business has more than one sales outlet, there might be a separate report for each. There may also be a report produced to show how well a particular product has done across different outlets.

For businesses selling more than one product, it is advisable to provide a financial breakdown for each product category. This will allow you to ensure that profitable products are not subsidising those that are selling poorly, unless you intentionally promote loss leaders to attract further custom.

Managing finance can only be successfully accomplished when a good management accounting system is in place to provide the basic data for review.

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