Management Accounting - The what, the when and the why

April 4, 2023 Anitha Maheshwar

Benefits of Management Accounting for Startups and SMEs

Management accounting is a branch of accounting that is focused on providing information and analysis to management team within an organisation to help them make informed business decisions to achieve their strategic goals. Management accounting reports may include budgeting and forecasting, cost analysis, performance evaluation, and risk assessment of the business.

✔️ The what - Management accounting is the process of preparing and producing the financial reports for managers and business owners.

✔️ The when - Management accounts are usually prepared on a regular and consistent basis to ensure a business owner or management team are getting the most out of monitoring their efforts. There is no set rule for this but typically they're produced monthly, or quarterly.

✔️ The why - Most companies produce management accounts because they need to examine the financial health of the organisation. It helps managers strategize, course correct and make informed decisions based on the analysis and interpretation of the financial data related to the internal operations of the company. It is a virtual tool to help the managers of an organisation steer it towards their goals. Examples include Cash flow analysis, Constraint analysis, Break-even analysis, Product costing and valuation and the like.

Is there a legal requirement to prepare management accounts?

There is no legal requirement to prepare management accounts, but it is hard to run a business effectively without them. Since management accounting is not mandatory by any law, it can have its own structure according to the company's requirements. So, if the company feels certain areas need more in-depth analysis or investigation it can do so freely.

Difference between Financial Accounting and Management Accounting?

✔️ Target group: Financial accounting is of great importance to current and potential investors, creditors and others outside the organisation. Management accounting is necessary for managers i.e., people inside the organisation who direct and control its operations, to make current and future financial decisions for their business.

✔️ Period: Financial accounting focuses on history; reports on the prior quarter or year. Managerial accounting focuses on the present and forecasts for the future.

✔️ Focus: Financial accountant is tasked with a more structured, external focus carrying out accurate historical financial recording and reporting. Managerial accounting focuses on internal reporting and strategies and problem solving for profitability and long-term business success.

Benefits of keeping management accounts

Future planning
By comparing your management accounts either monthly, quarterly or yearly you can look for patterns in income and cash flow. This leads to more accurate forecasts of future revenue or make allowances for doubtful accounts or even spot seasonal differences in cash flow.
Acquisition of funding
Management accounts can back up your business plan with comparable trends and forecasts. Investors can therefore be approached confidently. Sometimes, investors insist on management accounts before making crucial investment decisions.
Process optimisation
Understand your cash flow means you can make any needed improvements. For example, improving your collection process, or make other credit decisions quickly.

How can we support your business?

We at Dragon Argent, are happy to help with preparing management accounts for your business and provide any professional advice to help you make the best decision. We’ve seen the impact that it has made on the finances and performance of countless other tech businesses that we’ve worked with. We know that we can have the same impact on your business too.

Book a discovery call with one of our expert accountants in London today and find out how we can help you take your business to the next level.