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Part 3: Getting to grips with your management accounts.
In this 3-part business planning series, we discuss 3 critical business essentials for anyone considering starting their own business.
- Part 1: If you aren’t forecasting your cashflow, your startup may already be failing.
- Part 2: Business forecasting that will make, or break, SMEs before they’ve even started
We live in a world of automation. There are very few excuses left for a lack of automation, or at least some degree of cloud-based working.
And when it comes to keeping track of management accounts – SMEs are spoilt for choice when it comes to great online options for keeping track of, and managing, their management accounts. And yet so many still overlook the importance of accurate management accounts.
Let’s put it to you differently
You’re looking for funding. You want to approach an investor to ask them to lend you a set amount of money. And for that amount of money they lend you, you commit to giving them something in return – or, at least, the appeal of something in return.
You’re wanting to sell your business and you’re hoping to cash out. As part of the process, you need your business valued accurately.
You’re looking to employ a new management team to run your business for you. They will want to see how the business is being run, and what the current success rate is.
These are just three scenarios that, without accurate management accounts in place, will simply not happen. Or at least, will not happen in a way that is beneficial to you, your business, or your ego.
Introducing: The real value of effective management accounts
The digital world is making the operational world easier. Online platforms that help you to manage, record and communicate your business are becoming the norm. Financial reporting can now be accessed through a click of a button – whether you’re sitting in the same office, or on the other side of the globe – and companies have full accessibility to keeping track of their performance against forecasts, targets and budgets.
Accurate reporting means that you as a business owner, and your team, has access to compare your business performance with previous reporting periods and, if done correctly, will be able to highlight changing economic behaviours that result in profit or loss for your business – giving you the chance to forecast and build for future opportunity and threat.
But you simply cannot have one without the other.
Without effective forecasting (which we discussed in our previous two blogs in this series), effective management accounts are futile unless only showing current state of play. You may be able to see where you are right now, but you will have no insight on where you need to be, where you need to make change, and where you need to act strategically.
Your key to decision-making
Where forecasting serves as predictor, management accounting serves as enabler to making decisions for the short, and long-term.
Where financial accounting aims to provide critical information about business performance to an audience, management accounting is largely aimed at helping management teams make the best decisions about the performance and direction of a business.
As a business leader, you’ll no doubt be thinking long-term strategy: your own, or that of your business. This may include funding growth plans, exit strategies, innovation strategies and more. The ability to decide whether or not you need to buy materials / products from a 3rd party vs manufacture them in-house yourself is driven through the information and insight obtained through management accounts. The ability to decide whether or not you need to embark on a diversification process into a new industry or market is driven through the insights obtained through your management accounts. The ability to decide whether or not to invest in a investment-heavy exercises will be driven through the insights obtained through effective management accounts.
Taking action today
Our teams have helped businesses of all shapes and sizes, from a wide range of industries, experience exponential business growth. We are financial experts that deliver a quality of service that has helped many organisations see their growth in practice. From IPOs to Corporate Ventures, from Fund-Raising to Corporate Accounts – if you need help to get your decision-making power up to speed, then talk to us today.