Say Hello to Ben, he owns a small decorating firm in Yorkshire which is set up as a Limited Company. Ben has just received his end of year accounts from his Accountant.
Ben was CONFUSED!
He’d made so much less money than he expected, and was panicking, wondering what to do about it.
Ben sat down with Rachel from Account-ant for a coffee and a chat.
“Ben, have you heard of Management Accounts?” asked Rachel.
Once a month (or quarter) Account-ant looks at your books and breaks down your results.
So rather than waiting 12 months and discovering everything is not how you imagined, or even how you would like…
“right, this month you didn’t make much, why is that and how can we help that situation to improve?” We drill into it. Did you buy lots of materials so your materials costs are high BUT they will last for more than one job?
Account-ant could help by showing your actual cost per job rather than a finger in the air, for example.
Plus, there’s so much more we can do…
Going from “oops that job cost me more than expected” or “I’m not earning enough”…
To “that cost me more than expected, but I now know the exact costs including time and materials”.
Knowledge is power!
We could do a few things to improve this situation:
- Review your processes, can I save some time?
- Review the tools of your trade, is your van costing you more than it needs to?
- Is it time to take on an apprentice and how will this positively benefit my business?
- How can I effectively absorb price increases from my suppliers?
- Are there Grants that I could apply for? (Account-ant can MOST DEFINITELY help you with this!)
- BASICALLY – Is my Accountant helping me grow my business?
So how do Management Accounts differ from Year End Accounts? – The lengthy explanation
The short version is Management Accounts allow businesses to look forward, whereas Year End Accounts (or Financial Statements) look back at the year you had.
Management Accounts are generally produced on a monthly basis (but can be quarterly) and include all costs and income relating to the month. Bank reconciliations and stock are as accurate as possible.
Because they are produced in a timely manner it allows the business owners and managers to react quickly and make changes and improvements where necessary.
A Management Accounts Pack will include: –
- Profit & Loss Account including full Overhead costs broken down into categories.
- Year to date Balance sheet i.e. if January was the start of your Financial Year and your Accounts are made up to April, the Balance sheet would be for Jan-Apr inclusive.
- Debtors (who owes you) and Creditors (who you owe) Reports
- Key Performance Indictors schedule
- Debtors & Creditors Day (how long it takes to receive payments/make payments)
- Inventory Days (i.e. how long it takes you to convert stock into Sales) (This is for you, Ben 😉)
- Gross Profit vs Budget
- Staff Absences
- Stock Accuracy % (otherwise known as Perpetual Inventory)
Let’s grab a virtual coffee (I’ll bring the cake!) and discover how Management Accounts can propel your business forward like a Japanese Bullet Train.