The recent economic downturn and the expected slow recovery requires tailored management accounts information. Whilst management accounts information will never generate sales, it will highlight the suitability of the original business model in 2010 and allow you to make timely, informed management decisions.

Management accounts are even more essential if a business has already prepared a budget, as it will only be by comparison of the business’ actual results to the projections that the business owner will be able to assess the reliability of the original assumptions and hypotheses.

Beware!

Relying purely on financial statements prepared up to six months ago for a specific financial period to monitor your business’ financial performance will not necessarily assist in the current economic climate.

Assuming that the business is continuing as before will be optimistic - if not dangerous - and could result in ill-informed operational decisions which could seriously damage your business’ health.

One size does not fit all

Management accounts come in many shapes and sizes and it is important that whatever format is chosen, management information is provided that adds value to the decision-making process. Most organisations produce them regularly - quarterly is more realistic than monthly as it provides an opportunity to manage trends in the business and compare to historical information. If the decision is to use quarterly management accounts then they should be prepared in the month following the end of the quarter otherwise they will become too historic to serve their purpose.

To be meaningful, the information provided by management accounts should be structured to disclose the respective performance of different divisions of the business or the relative contributions of differing types of product or service. They will usually be compared to a budget that has been prepared but they can also be compared to the corresponding results for the same period of the previous year or the results of the preceding period.  Analytical review is often used by businesses to evaluate current performance.

Management accounts should, ideally, be prepared using software to avoid incurring significant time and costs. In addition to providing a snapshot of the business’ current performance, they can also contribute to the preparation of annual financial accounts.

Menzies provide assistance in preparing management accounts - either through the client’s relationship partner or our Outsourcing division (for those businesses wanting to delegate their accounting function). If you want to discuss this article and your management accounts, please contact Tim Dunn, partner, by email at tdunn@menzies.co.uk.