What are Management Accounts?

3 years, 6 months ago by Oliver Atkinson

Management accounts are accounts produced for the management of a company, usually monthly or quarterly, to help management to make informed decisions when running the business.

Management accounts will usually include the following but can be tailored to include additional areas, such as accruals and prepayments or cash flow forecasts, to provide you with the information you need to make good business decisions:

Profit and loss:

As the name suggests, this financial statement shows if you are producing a profit or a loss. It will show all your income and expenses for the period and compared to previous periods as a measure of your business’ performance.

Balance Sheet:

A balance sheet shows your assets and your liabilities. When it comes to management accounts a balance sheet is useful for managing debts and producing KPIs (key performance indicators) that ensure your business is well balanced and can stay on top of things like aged receivables and cash flow.

Key Performance Indicators:

These are ratios that you can use to measure certain aspects of your business such as:

Gearing ratio – this shows your capital compared with debts. As a rule, you want to keep this below 50% because a gearing ratio over 50% suggests your business has too much debt and would not be able to meet it’s debt repayments if circumstances changed.

Liquidity ratios – liquidity means cash, how much cash do you have to pay your debts as when they are due. This will help you to stay on top of your cashflow but also in other areas such as when deciding to offer customers credit. The most used liquidity ratios are current ratio, quick ratio and accounts payable/receivable ratios.

Profitability ratios – These ratios will measure how profitable your business is, for example the gross profit margin ratio will tell you how much money is left after all direct costs are deducted. Return on Capital Employed can tell you how much you make out of every £ you spend.

Management accounts can also be useful for finding, and resolving, weaknesses or discrepancies in your business before they become a problem. Like having your finger on the pulse of the business you can see any potential obstacles coming when comparing against previous months such as profitability ratio to notice poor credit control and ensure your customers are paying their invoices before your cash flow becomes a problem.

Statutory Accounts Vs Management Accounts

Both Statutory accounts and management accounts draw from the same data but both are produced for different reasons and for different periods of time.

Management accounts are accounts you choose to produce and can tailor to show you the information you need to run the business. As such they should be produced monthly or quarterly to allow management to notice problems and make necessary changes in good time.

Statutory accounts are legal requirements that have to be submitted to Companies House annually.

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