What are Management Accounts

Management accounts are vital for a company's management to track performance, and may indeed be required by banks and investors.
The importance of evaluating the performance of any business before the year-end can be crucial. Clients are encouraged to monitor their performance and Atkinson Accountancy will help them by preparing monthly or quarterly management accounts, which they find invaluable. For any small business wishing to succeed, monitoring costs, revenues and cash flow in the early years is vital

Why do I need Management Accounts

The benefits of preparing periodic management accounts may not be understood by all.  Possibly the work may be considered an unwanted administrative chore or simply a cost and another source of cash outflow from the business.
Whilst some administration work is required, however, the preparation of management accounts is work that should ease the workload at year end, and form the basis of the annual results. Should you wish us to prepare both management accounts and annual accounts, significant savings can be made due to the reduced time required as the accounts are in good order, and the increased understanding we will have in the affairs of your business.

Benefits:

• Product profitability - Can immediate and accurate assessment be reported to show products that provide truly profitable business? Equally importantly, is the same information at hand for unprofitable lines?
• Profits - Is it clear when and why profits have increased or deteriorated?
• Cashflow - Can this be predicted over the next few months with any degree of certainty?
• Overheads - Are they under control? Is it known which activities generate unnecessary costs?
• Performance - Are key performance indicators and measures in place?
• Future direction - Is the organisation’s strategy supported by a business plan?
• Customers - Is reporting in place to assess which customers are truly profitable? Are there any early indicators that any of your customers are in financial trouble, potentially going out of business leaving you with a bad debt?
• Detection of Fraud - A regular review of the financial performance of the business will increase the possibility of detecting fraud or other malpractices.  Simply the longer time gap between financial reviews will allow wrong doings to remain hidden and more difficult to uncover.

Is there a legal requirement for Management Accounts

All businesses are required by law to keep certain financial information, however, it is often found that in meeting the business legal obligations the small business owner is found wanting.  It may be too convenient to ensure the bank balance is always positive and then wait until the end of the accounting year before knowing the financial results of the business. This approach may not be consistent with meeting the legal requirements. HMRC certainly view the preparation and review of management accounts as critical in establishing whether there has been wrongful or fraudulent trading. Preparation of management accounts can help to protect you against unfair charges of wrongful or fraudulent trading.
The implications of this are huge and should the company go under the limited liability status of the company could be lifted temporarily (known as lifting the veil of incorporation), and the directors of the company be made personally liable for the companies debts if the knew, or (more importantly!) should have known that things were going wrong.
Put another way, even if you have a limited company, should things go wrong you could still loose your house if you can’t demonstrate you were in control!
Management accounts are one way you can help to protect yourself

Conclusion

The preparation of management accounts will provide a valuable tool on which the business owner can manage the business.  Informed decisions can be taken based upon objective data and be taken in a timely manner to enable the business to succeed.

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