In this blog, our founder of Finance with Flow, breaks down what management accounts actually are, and why they’re essential for making informed decisions throughout the year. Whether it’s tracking profitability, monitoring cash flow, or spotting early signs of trouble on long-term projects – good management accounts are not to be taken lightly.
If you’ve ever wondered how to move from reacting to numbers to actually driving them — this one’s for you!
Following a recent discovery call with a client I was told, you’ve explained more to me in half an hour than my current accountant ever has.
The business has scaled, reaching the £1m turnover mark, and was looking to move from the start up ‘bookkeeper / year end accounts’ to more fully understanding their numbers. I took them through the Finance with Flow outsourced finance department offering and they asked the question…..what even are management accounts? Which got me thinking, how many people are running a business without knowing what they don’t know.
I thought it might be useful to explain for anyone that is also in the dark about what they are and how they might benefit you in running your business.
Starting at the very beginning, there are 3 important factors to management accounts;
Firstly your Profit and Loss – or P&L – which looks at how the business is doing, this is broken down into 3 parts:
- Turnover – how many sales have you made
- Cost of sales – what is the cost to you of making those sales
- Overheads – what are the costs of running your business, that are not directly linked to making a sale, this might be renting an office or insurance for your business.
This all brings you down to the profit you have made.
We will then look your balance sheet, this shows the strength of the business. This essentially shows you what assets you have less your liabilities.
Finally, will be a cash flow showing how much cash you have, what your cash movement have been and what you expect this to do.
When you only look at your financial position annually you lose the ability to adjust as you go through the year.
By preparing management accounts, either monthly or quarterly, you get early warnings if things start to go wrong.
This is particularly important in construction, where contracts may span a number of months, as by assessing each month where a contract is you can avoid getting to the final account and realising that it’s a loss making contract. Looking monthly allows you to ensure you are charging properly for VO, spot cost overruns and protect cash flow.
You can also be more agile on an overall business level, for example, having the right information to decide to recruit or not.
Contact us today to see how we can help you on undercontrol@financewithflow.com or 01206 326620 and let’s chat through your needs. We can shape your success together!
Visit our website to find out more about our services and packages – https://financewithflow.com/packages/
