Management Accounts: Key Features and Purpose

Decision Making Tools

The primary purpose of management accounts is to provide relevant and timely information which then aids decision-making within a business. They’re used to evaluate company performance, allocate resources within the business, set goals, and make strategic choices.

Flexibility

Unlike standardised external financial reporting (that’s your end-of-year accounts) management accounts are made to be customised to what you want to see happening within your business. Want to see which department is making a loss and why? Or want to allocate staff to another project but are unsure which can cope with the shift? The data you can compile can enable you to see this information in real-time and make a quick decision to move the business forward.

Future-Orientated

While historical data is still important in management accounts there is a greater emphasis on forward-looking information. This involves projections, budgets, and forecasts to help business owners plan for the future.

Performance Evaluation

Ever wondered how your business performed last month compared to the month before? Real-time information in management accounts enables you to do just that. Put projects side by side and evaluate them, see if targets were met and how close were you if not. Allowing you to identify any areas of concern and take corrective action before it is too late.

Cost Management

Detailed costing information in these types of accounts helps business owners to understand their cost structure and identify opportunities for cost reduction and optimisation within their business.

Risk Management

Management accounts also play a crucial role in assessing and managing risks within a business. By providing real-time financial data and performance metrics, they enable business owners and managers to identify potential risks and take proactive measures to mitigate them. This can include monitoring cash flow, identifying market fluctuations, or recognizing any operational issues that could impact the company's financial stability.