Are you making the most of your business? Do you have a plan for where you want your business to be in the future? Are you keeping track of your business’s finances? If not, then management accounting may be just the thing you need.
Management accounting is more than just simple number crunching. It combines financial and non-financial information to give a more complete view of a business. It can help with various aspects of a business such as planning, decision making, identifying problem areas and strategic management.
The main purpose of preparing management accounts is to help with decision making. Budgets are a key aspect of management accounting and go a long way to help with the decision-making process. They give you an idea of the expenditure of various aspects of your business, for example wages, rent and purchases. Budgets will allow you to see not just how much you are spending on a particular area of your business, but also where money can be saved and where needs more. Management accounting will provide a business with various analysis and forecasts that will make the process of decision making easier and more accurate.
Another key focus of management accounting is planning. It is a continuous and ongoing process that, depending on the size of a business, can be carried out weekly, monthly or quarterly. For most small businesses quarterly management accounts should suffice. The data obtained from management accounts can help management plan the activities of a business. For example, if the analysis highlights that during a certain period there was a dip in sales, a plan can be made to help combat this.
Management accounting can also help identify problem areas in a business. Accurate management accounting can show if a certain product is not selling well or if it is costing too much to produce and making a loss. This allows for management to see where the main issue is and thus try to rectify it. It may be something as simple as spending too much on a raw material needed or the labour costs are too high. This will help a business cut the losses and increase the profit margin.
As management accounting is not required by law and for internal use only, each business can have its own structure tailored to the company’s requirements. This allows management to focus more in-depth on the areas of the business they feel warrant it. This may be on production of a certain product or the feasibility of a new product.
Management accounting can go a long way to helping you become successful in business, but there are disadvantages too. For example, if the information used to prepare management accounts is not accurate, then the decision made using this data will be flawed. Also, management accounting cannot recommend a specific course of action, only give you suggestions and what action to take.
If you feel you would benefit from management accounting, you should call with your accountant to help start the process.