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Management Accounts & Financial Control

Having good, reliable, relevant and timely management information can make the difference between the success or failure of a business.

Management accounts are a set of financial statements, normally prepared on a monthly basis, which allow the business owners or directors to understand the financial performance of the business. The actual performance may be compared to a budget or forecast for comparison purposes. They will assist the owners in making informed decisions which can improve the financial performance of the business. The financial statements usually consist of a profit and loss, a balance sheet, a cash flow statement, key performance indicators, sales reports, costs analysis reports, aged debtors and aged creditors reports and a summary narrative.

Sometimes the work involved in producing management accounts may be considered by some as an unnecessary administrative chore or simply another source of cash outflow from the business.

There is however a legal requirement to prepare accounts for your business at the end of it’s financial year and producing regular monthly accounts will greatly assist in the year end process. It also means you don’t have to wait until the end of the year to determine how well your business has or hasn’t performed. By reviewing your management accounts on a regular basis you can make informed decisions during the year to correct problems or identify improvements which can have a positive impact on the financial performance.

The benefits of producing and reviewing management accounts are:
Business Control – identifying trends and have sufficient detail to take corrective action sooner rather than later. You need to focus on sales, both volume and value, margins, costs and profits. If left unchecked, some adverse situations may not manifest themselves until you run out of cash, which is often too late and can lead to business failure. Sales need to be reviewed to identify which are your most important customers. You can identify sales trends. Also which products or services not only generate the largest sales but also generate the largest margin, the two do not necessarily come hand in hand. Each month you should be looking at your business costs broken down by each type of business expense. This will identify where money is being spent but in addition if costs are increasing and allow the business owner to take corrective action as appropriate.

It shows to outside professionals that you are in control of your business finances. Where you can demonstrate a sound understanding of your business finances then people dealing with your company will have a higher level of respect and comfort in dealing with you and your business. In some cases it may be a requirement of any funding that management accounts are produced on a monthly or quarterly basis. Banks will normally insist on this if you have bank funding.

Producing regular monthly management accounts will help to reduce the work involved and cost of producing your year-end accounts. There should be no major surprises that come out of the year end accounts as any queries or issues have been addressed as part of the normal monthly management account routine.

Producing regular management accounts will increase the possibility of detecting fraud and will allow it to be identified much sooner.

Producing regular management accounts can identify the specific areas where financial control needs to be strengthened.

Typically, good quality Management accounts will enable you to:

* compare your accounts with original budgets or forecasts
* manage your resources better
* identify trends in your business
* highlight variations in your income or spending which may require attention

They should be used for the following:

Record keeping

* recording business transactions
* measuring results of financial changes
* projecting financial effects of future transactions
* preparing internal reports in a user-friendly format

Planning and control

* collecting cash
* controlling stocks
* controlling expenses
* co-ordination and monitoring of strategy/performance

Decision making

* using cost information for pricing, capital investment and marketing
* evaluating market and product profitability
* evaluating the financial effect of strategies and plans

A good accounting system will assist greatly in the production of management accounts. There are many standard reports available which will satisfy the needs of most businesses.

Amel (UK) will assist you every step of the way with your system implementation including the initial set-up and providing training to you and your staff as well as ongoing support.

In addition, for some clients we take care of the monthly management accounts and produce a managment accounts pack which we will review with you and highlight areas that need addressing. This also serves as a check to ensure that information being processed onto your system is correct.

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