In recent posts, we’ve explored the difference between management and statutory accounts and looked at what you need to know about filing accounts under Irish law.
The key difference between the two types of accounts, of course, is that statutory accounts are compulsory, management accounts are not. If you don’t stick to the rules and make your statutory filings every year within the prescribed timeframe, you risk financial penalties and worse.
By contrast, there’s nothing to compel any business to produce management accounts. They are for internal use only, and therefore completely up to your discretion.
So why bother, you may well ask? Statutory annual accounts and returns cover all the essentials of financial reporting and oversight – profit and loss accounts, balance sheets, even directors’ reports evaluating what the numbers mean to the business and making forecasts and plans going forward.
Yet as professional accountants and business advisory specialists, we also recommend clients keep management accounts. Why? Because once a year is too infrequent to dig into the financial health of your company. The world of business is increasingly fast-moving, business leaders are regularly required to make decisions that lean on or impact finances. This should always be done with a thorough and up to date grasp of the company’s financial situation. And that’s where management accounts come into play.
Prepared monthly or quarterly and focused on turning financial data into business intelligence, management accounts provide up-to-date, accurate financial insights in support of decision-making. Here are the benefits.
Assessing progress towards business and financial goals
For most businesses, ‘short-term’ strategy means looking to the next 12 months, with medium and long term planning looking at blocks of three, five or even 10 years. But as we’ve mentioned, even a year is a long time in business. It might be a convenient span of time for setting goals, forecasting and fixing a budget. But over the course of 12 months, it’s easy to veer badly off your intended course if you’re not careful.
The answer, of course, is to regularly check progress against milestones, make adjustments as needed, or even change the strategy/budget if it’s clear it no longer reflects realities on the ground. Management accounts are a key tool for doing this.
Controlling costs
Unforeseen cost increases are part and parcel of managing a business, and are one of the main things that will derail financial strategies and budgets. Rising costs can be caused by external factors the business can’t control, but can also occur as a result of details being missed in forecasting. Either way, by assessing management accounts on a regular basis, board members and directors can spot rising costs early, and make necessary adjustments before margins get seriously eroded.
Mitigate risks
Going hand in hand with cost control, financial issues can spiral surprisingly quickly in business. It only takes one seemingly innocuous problem with cash flow for a payment to be missed, and then by the next invoicing cycle your available cash is having to cover more bills than you expected. If you don’t look at the underlying problems causing issues like these, you can quickly find you’re missing payments on a regular basis. That’s the slippery slope to insolvency.
Management accounts help businesses spot problems early and therefore mitigate the risk of issues spiralling out of control.
Not got the time to keep management accounts up to date?
We understand that preparing accounts on a monthly or quarterly basis adds an extra administrative burden that plenty of businesses are loathe to take on, especially SMEs. But you don’t have to do all the work yourself.
Speak to an expert
At Xeinadin, we offer a wide range of outsourced accountancy services, including preparation of management and statutory accounts.
