When it comes to running your small business, the legal filings and required forms may cause your head to spin, but which of these are necessary for your company and which can be saved for when your business reaches expansion? Today, we are here to recap management accounts. Do small businesses require them and could they be beneficial?
Firstly, when it comes to management accounts, there is no written law or requirement stating that small businesses should file them. However, the reason in which so many companies opt in when it comes to these accounts is due to the way in which they can aid the effective operation of your business.
So, what are management accounts?
Simply put, management accounts are a set of financial documents which are prepared on a regular basis, compared to annual accounts which are only filed at the end of each financial year. The management accounts therefore allow you, as the business owner, to understand the current financial position of your businesses throughout the entirety of the year. They should consist of a profit and loss sheet, balance sheet, cashflow statement and any adjoining notes and can be filed either by the business owner or a bookkeeper.
What are the benefits of management accounts?
- Control
Knowing the accurate financial position of your business will grant you power. The accounts will allow you to make confident and well-equipped decisions at any point throughout the year without resulting in a shortfall later on down the line. You should be able to spot any trends, increases or downfalls as soon as they arise, allowing you to make the correct choices to ensure that your income and service offerings continue to excel. - Focus on key elements
Being able to focus on the key factors that keep your businesses running effectively can allow it to grow from strength to strength. Management accounts will ensure that you are educated on your sales each month or quarter, depending on when you file, whilst keeping a close eye on your businesses profit and loss margins. This focus will provide you with the knowledge to make fast and accurate decisions to benefit your businesses expenditure and future. - Reduced annual audit costs
Preparing management accounts throughout the year will allow you to limit the time and expenditure spent on financial year end auditing. Instead of working through your profit and loss sheet, balance sheet, cashflow statement and a year’s worth of notes in one single sitting, you will have the opportunity to break it up into anything from four to twelve sessions. This will also allow your level of accuracy to improve as you won’t need to remember your figures from eleven months ago, but instead, just a few weeks back. - Fraud detection
Reviewing your businesses financial position and expenditure regularly throughout the year will allow you to detect if an action of fraud or wrongdoing has been made. Leaving these figures to bundle up over a period of twelve months will allow these actions to become disguised or, at worst, missed entirely.
If you are seeking any further information or aid on the topic here discussed, or for assistance and professional advice on any other business matter, get in touch with a member of our Cain and Co team today by calling 020 8087 1341 or emailing takecontrol@cainandco.co.uk.
