Management Accounts
Enhancing business profitability and expansion.
What are management accounts and why do I need them
Your company’s accounting department is here to support you by preparing customized or standard financial reports every month or quarter. These reports are specifically designed to help you track the progress of your business and make informed decisions based on key performance indicators, balance sheets, profit and loss statements, and an executive summary.
Management Accounts are different from Statutory Accounts because they focus on your unique business requirements rather than being mandated by the government. Business owners and managers like you rely on these reports to monitor their financial health and plan for growth.
By leveraging the valuable insights provided by these reports, you can better understand your business’s financial status and make more informed decisions that could help you achieve your goals. Additionally, these reports could be instrumental in securing a loan if needed.
Further information about management accounts
Management Accounts are crucial for monitoring key performance indicators and ensuring that your business stays on track to achieve its goals within the required timeframes.
You can access:
- Staff and management performance
- Which customers are providing the most business?
- Cashflow & billing
- Pinpointing your business’s ‘star performers’ as well as those who are underperforming.
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Difference between management accounts and financial statutory accounts
| Statutory accounts | Management accounts | |
|---|---|---|
| Aggregation | Consider the entire business | Consider the specifics of the business, such as the profits earned by a product |
| Efficiency | Consider the efficiency of the business as the report is about profitability | Take into account the specifics in order to help understand the root of the problem and find its solution. |
| Proven Information | Require precise records | Work on actual, estimates and approximation |
| Reporting Focus | Reports for within and outside the company focused on finances | Reports mainly for within the company focused on operations |
| Standards | Need to meet certain standards set by Companies House | Do not have to comply with any standards |
| Time | Take into account everything that the business has achieved | Have a future orientation |
How should management reporting packs be structured?
The Profit & Loss (P&L) report is used to show a business’s performance within a given period by summarizing the income and expenses incurred. The content of the reporting pack will vary from business to business based on their unique requirements. For instance, a retailer with multiple stores may need Income & Expenses broken down by each store, whereas a construction business may require the profitability of each project. As such, the P&L report produced for management must be customized to reflect the nature of the business, the level of detail needed, the frequency of reporting, and the layout.
Depending on the industry or nature of your business, we can work with the management team to determine key performance indicators. These will then be benchmarked against the industry and regularly reviewed to see your company’s health.
Aged Debtors report summarises all your business debtors (i.e. the people who owe you money). It shows how much is owed and how long the money has been outstanding. It is a vital report as it shows your cash flow and how to reduce any bad debts risks.Aged Creditors report summarises creditors (i.e. the people to whom you owe money). When effectively managed, this can provide essential financial information to help you determine how much and when to pay your suppliers.
01. Profit & Loss (P&L) Account
The Profit & Loss (P&L) statement represents the company’s performance throughout the fiscal year, summarizing the income received and the expenses incurred. However, since each business is unique, the components of the P&L may vary.
In addition to the P&L, most companies must also file a Company Tax Return with HMRC annually, reporting their earnings, losses, loans, and other factors that may affect their tax obligations.
For instance, a retail business with several stores may prefer to have its income and expenses categorized by each location. In contrast, a construction business may want to evaluate the profitability of each project they undertake.
Thus, the P&L report prepared for management should be customized to suit the company’s nature, level of detail required, frequency, and layout.
02. Balance sheet
A Balance Sheet presents a snapshot of a company’s financial status at a particular moment in time. Along with its primary purpose of providing an overview of the company’s assets, liabilities, and equity, a Balance Sheet can also be useful in determining critical business ratios that help to identify risk areas.
Such ratios may include liquidity ratios, debtor days, inventory days, and others. By incorporating notes that indicate these key ratios, businesses can have a better understanding of their financial health and plan accordingly for any potential cash flow needs.
03. Key performance indicators (KPI's)
Notes to the accounts provide essential details that would be beneficial to any stakeholder of the business. Some common examples of such information are:
- Breakdown of Fixed Assets to show amounts purchased, sold and depreciated
- Related Party Transaction during the year
- Detail of some of its creditor or debtors e.g. money owed broken between the bank, taxman or a director
04. Directors report
Under the Companies Act 2006, larger companies must include a Director’s Report in their Annual accounts to enhance corporate transparency. This report outlines the company’s principal activities, significant events that occurred during the year, and their business impact.
The Director’s Report provides an opportunity for companies to provide more extensive details regarding their performance throughout the year, including any regulatory impacts or changes in the economic outlook. The report may also mention the company’s intention to pay dividends.
05. Auditors report
The Auditor’s Report is necessary only for companies that undergo an Audit, either as a Compulsory or Voluntary Audit, and is conducted by the company’s auditors. Following a thorough examination, the auditors will determine whether the financial statements accurately represent the business’s financial position.
Criteria for small companies
If your company meets two of the following conditions, it is considered as a small business:
- You have a turnover less than £10.2 million
- You have up to £5.1 million on your balance sheet
- You have less than 50 employees
Criteria for Micro-Entities
Your company will be classified as a micro-entity if it satisfies two or more of the following conditions:
- You have a turnover lower than £632,000
- Your balance sheet shows a maximum of £316,000 or less
- You have 10 employees or less
As a micro-entity, you are not required to prepare complex accounts, and you can submit simplified Balance Sheets to Companies House. Micro-entities are eligible for the same exemptions that are granted to small companies.
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