Last week we set out the first 5 benefits of Management Accounts. Continuing with that, here are another 5 to round out our Top 10!
Allows Monitoring of Working Capital
It is easy to see how much cash you have in the bank from month to month, but much more difficult to monitor how much your clients owe you, how much you owe creditors, and of the monthly movements in those figures. An increase in debtors, without an increase in turnover can be an early warning sign that clients are taking longer to pay, and that you need to invest some time in chasing payment of your outstanding fees, or using an outsourced Credit Control service.
Helps Motivate (some) Managers and Staff
It can sometimes be helpful to share management accounts with key members of staff, so that they can easily see the reason why they need to control costs, increase collection of fees etc. Accounts can be a nice visual aid to focus performance, and can also be split into specific areas if you only want to show staff particular areas of the business relevant to them. However, you should note that not everyone will be interested in numbers!
Avoids Surprises at Year End
Usually business owners will have a reasonably good idea of turnover, and a grasp of regular costs, however it can be difficult to monitor varying margins, exceptional costs, one-off projects and anything else out of the norm. It can also be difficult to factor in accounting concepts such as accruals and depreciation. This can mean that the year-end results are far from what’s expected. If a business has made an unexpected loss it can come as a nasty shock. If the business has performed much better than expected, it could result in an un-planned corporation tax bill.
Helps Identify Seasonal Variances
Traditionally, some types of firm will be busier at certain times of the year, and quieter at others, so need to plan ahead for that. Usually (albeit not in 2020!) conveyancing firms are busier in spring and autumn, and monthly accounts allow you to track and analyse every individual month, so that you can clearly see the impact of this and plan for future years accordingly.
Helps to Plan Dividend Payments, Drawings and Other Remuneration
Some business owners will choose to take their earnings in dividends or drawings rather than salary. However, for less established or less profitable companies this will need careful monitoring, to ensure too many dividends or drawings are not taken through the year. For other businesses, it may be that through monthly monitoring, it is perfectly possible to take more drawings each month.
There are of course many different benefits, and these will vary firm to firm, but hopefully this has provided some food for thought in terms of running your business with the benefit of information allowing you to do so with more confidence.
Gregor Angus, Senior Business Development Manager