The advent of technology like Xero has given an enormous amount of power to you as the business owner. Now, you have access to your business’ financial data in real-time, giving you incredible insights to help you make better decisions going forward.
That being said, it’s possible to take this information even further, and use the numbers to dive deeper into the financial strategy of your company.
Enter management accounts, detailed reports with specific data to match your business’ needs and help determine what actions you need to take, and we’re using this blog post to cover what they are, and how beneficial they can be. Let’s get started!
The difference between management accounts vs. annual accounts
The key difference between management accounts and annual accounts is their purpose. As a limited company, you’ll have grown accustomed to have annual accounts filed each year as a statutory requirement.
It’s these accounts that can be seen externally by bank, regulators and investors through sites such as Companies House, and their purpose is show your business’ overall performance at a given time.
But management accounts are instead focused on segments of the business, and are exclusively used to help make predictions about future growth and profitability of your business going forward.
How can management accounts benefit me?
Whilst there is no legal requirement for management accounts, they are extremely helpful in providing a true representation of where your business stands financially.
It’s this information that helps you plan for the future, allowing you to adjust the direction you’re business is going based on recent successes and failures. Now, you’re not looking to the past. Instead, you’re using that real-time information available to you to drive strategic decision making.
Many businesses choose to have their accountant create management account reports either quarterly or monthly. That way, you’ve got a regular update on financial data to keep you in check.
Do I need both? (Short answer: Yes)
We like to think having both annual and management accounts provides you with enough information to keep your business thriving.
Yes, the annual accounts keep you compliant, making sure the numbers are adding up, but without management accounts supporting that, you could be missing on information that provide a return-on-investment and give you critical oversight of your business.
So, our recommendation is to have both, to get a true and accurate picture of your business going forward. When you combine that with strategic advice from your accountant, and brilliant technology weaving into everything you’re doing, then you’ve got solid foundations for driving your business forward. If one of those is missing, talk to us to get what you need!