Management accounting – are you using it?
How management accounting can help your businesses efficiency
A business, it is said, should be a well-oiled machine but it can be hard to know where you are at without a proper management accounting system in place.
It’s best to think of your business as a miniature eco-system that requires care and respect to maintain its balance.
Happy employees are essential to a harmonious environment in which productivity is maximised and high standards are met. So too are balanced finances. The latter provides the capacity for your business to thrive and although it may not seem obvious at first, management accounting can provide a solution to improving efficiency and stimulating organic growth.
Broadly speaking, management accounting represents the process of gathering, processing and preparing data for presentation to managerial and board level professionals. This information is then used to support key business decisions and the development of corporate strategies.
So how can management accounting help you run your business more efficiently?
How management accounting differs from financial accounting
Perhaps the first thing to cover off is how management accounting differs from financial accounting. It’s important not to get the two confused, so here’s a basic summary.
Financial accounting very much focuses on the development of financial statements for publication either internally or externally, determining the financial performance of your business as a whole. The aim is to provide accurate reporting on expenses and sales, ultimately documenting the profitability of the company. More often than not for mosr SMEs this task is carried out once a year.
Management accounting, however, takes a detailed look at the causes of any issues highlighted in the financial reports. The information presented in management accounting is often based on refining the internal processes of the business; as such there are no standardised guidelines to adhere to, it’s more about utilising internal practises to meet the requirements of the organisation. Generally management accounting is carried out on a continuing basis and management accounts can be produced for review monthly or quarterly.
So when you’re searching for a management accountant, you’re looking for someone with a slightly different skillset to a financial accounting expert. You’ll want to ensure that you’re getting the accuracy and level of detail and analysis that you require, especially if you seek assistance from a third-party provider.
How does this add value to your company?
If your business is to run smoothly, every department must add value to it. Management accounting adds value by helping to drive and inform core business decisions. You’re essentially investing in the expertise of a professional who can collate and communicate key financial data to business leaders effectively. That data supports smarter decisions and enhances success.
With more up to date information to hand, not only can you plan better but you can also reduce your expenses, optimise cashflow and increase financial returns on investments and business actions. More money in the bank means more opportunity to invest in staff, systems or services.
Achieving these goals with management accountancy
Let’s take a more detailed look at how management accounting can optimise your work practises and business finance.
Reducing your expenses inevitably streamlines the operational costs of your business. Part of the role of a management accountant is to gather and analyse costs associated with employing staff, producing goods and accessing services. For example, you might be overpaying for raw materials required to produce your goods; from information sourced via management accounting, you will be able to find cheaper suppliers and boost your profit margin substantially as a result.
Cashflow, meanwhile, is a key concern of any business. By analysing historical financial information, management accountants will be able to develop a master budget for your business – a hefty task for larger organisations with small departmental budgets. The creation of a master budget, however, will provide you with complete oversight of where your money is being spent. This overview will help to construct projections going forward and identify and eliminate unnecessary expenditure.
Finally, management accounting enables you to make more confident business decisions regarding financial investments. An accounting forecast is created, which looks at market and customer demands, areas of business development and perhaps even the impact of economic change. With these reports you can reassess your business operations and make subtle or larger changes. A regular review will provide regular opportunity for growth and continued success.
Decision making in management accounting
As we’ve already discussed, management accounting comes into its own when applied to the decision making process in your business. It can help with small scale, day-to-day issues right through to full corporate strategic planning.
As an example, let’s assume your business runs coach tours in Europe. In recent years profitability on these has fallen. A management accountant can identify why this is – perhaps supplier costs have increased or the use of outdated systems is eating into overheads. The findings of a report can help you see where changes can be made to restore profitability.
By embracing the analysis and reporting offered, you can use the data to make efficiencies within your business. It may be that some findings require a longer term plan, while other improvements can be achieved relatively quickly. Either way, as a tool for approaching key milestones, management accounting can offer much to facilitate better decision making and future successes.
Find out more with THP Chartered Accountants
By accessing the most accurate and concise information regarding your finances and working practises, you can begin to develop a clear strategy for your organisation. Working with a team of experienced management accountants ensures you can be confident that the reports you receive truly meet your requirements. From there, you can explore the most appropriate ways to maintain efficiency and achieve growth.
At THP Chartered Accountants, our team of friendly and knowledgeable accountants will be able to provide details on our accounting and management services. We’ll help you identify the types of information you need to make strategic decisions concerning your business. You can also rely on us to provide the kind of detailed analysis that helps make your day-to-day operations far more efficient.
Contact us on 0800 6520 025 to find out more about management accountancy with THP Chartered Accountants. Alternatively, visit one of our offices in Cheam, Chelmsford, Saffron Walden, and Wanstead to discuss your needs.