Implementation of Management Accounts

Management accounts are a vital part of running your business effectively.

OVERVIEW

Get assistance with the Implementation of Management Accounts with OCFO.

Many small and medium-sized businesses look at their numbers once a year, usually when the annual financial statements need to be signed off. In most cases, this is up to 12 months after the end of that specific financial year. Some of the information in those financial statements is then almost 24 months old. In terms of its use for decision-making, the information is no longer relevant to the current position and performance of the business.
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Review your accounts Regularly

In order to make better use of relevant financial figures, management accounts should be reviewed on a monthly basis.

 

The value in management accounts lies not only in reviewing historical results or your current financial position but is also key in helping you make decisions going forward. Management accounts are the temperature gauge for your business. You can only adjust the thermostat if you know what the current temperature is. In short – not using your management accounts as a decision-making tool on an ongoing basis, is similar to fighting with one hand tied behind your back.

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Assess debtors and creditors

Debtors and creditors should be proactively managed to avoid cash flow shortages. Assessing debtors’ and creditors’ balances should be part of your management accounts.

 

Understanding not only your cash balance at month-end, but your balance throughout the month, will give you an indication of whether you need to apply for an overdraft or not. Some businesses are overly quick to apply for an overdraft. Assessing and adjusting your payment terms for debtors and creditors can reduce your working capital cycle and result in you not requiring an overdraft. This can only be done by assessing your debtors’ and creditors’ balances on a monthly basis at least, as part of your monthly management accounts.

Compare actual vs projected accounts

Your actual results for the previous month and the year-to-date should be compared to your budget, to determine whether your business is meeting its target or not.

Where the business is not meeting targets, there is an opportunity to investigate and determine whether changes can be made to that specific part of the business.

 

In the same way, results for the previous month and the year-to-date can also be compared to the previous year’s results to determine whether the business is growing or not. Are you aware of which of your revenue items contributes the most to your total revenue? This should form part of your management accounts. You should also understand which are your largest expenses on a monthly basis as well as any changes to those expenses, as those are the ones that make the biggest impact on your bottom line.

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Use a big picture mentality

Remember to always work on your business, not just in your business. Knowledge of key trends and variables is needed in order to make the most effective managerial decisions.

 

Avoid getting lost in the details before gaining an understanding of how your business has performed on a higher level. Understanding the high-level variances will guide you and determine where you need to spend the most time in analyzing your management accounts, which will save you time in the long run.

 

Understanding key revenue drivers and cost drivers for each month will also assist in making crucial decisions. e.g. selling price of service A for the month, volume of product B for the month

Management accounts should be designed to assess key performance indicators that have been set by the business. For example, revenue growth, gross profit margins and profits.

 

Management accounts also serve as the base for:

Management Accounts services provided by OCFO

The management accounts prepared by the OCF team are designed for high-level financial decision-making purposes.

 

Management reports are drawn up for both the director who wants to have a high-level understanding of the position and performance of the business, as well as the hands-on business owner or CFO that wants to get to grips with the nitty-gritty of the monthly accounts.
If you are managing a group of companies, OCFO can combine these businesses into one report to allow you to have an overview of the performance of the group as a whole.

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