Management accounts free guide - ThinkBusiness

The financial accounts comprise of a profit and loss account, a balance sheet, and a directors' and auditors' report. The format for these financial accounts is ... Share Share Share Share Often,itfeelslikethereisnotenoughtimeinthedaytodoeverythingthatneedstobedone.Thelastthingyouoranyoneelsewouldwanttodoistoimmersethemselvesinfinancialstatementsorprojections.That’swhyyouhavetheservicesofabookkeeperor,betterstill,anaccountant.  Butyouwouldbewrong.Asabusinessowner,youneedtobeontopofthebusiness’sfinances.Youneedtoknownotjusthowitiscurrentlyperformingbutalsohowitisprojectedtodointhemonthsahead.Nothavingthissortofinformationatyourfingertipsislikedrivingwithoutyourcarheadlamps–youcan’tseewhereyouaregoingorwhatyoumightbumpinto.Remembertoo,it’snotjustyouthatwillbeinterestedinhowthebusinessisperforming.Customers,suppliers,yourbankortheRevenuecouldallseekfinancialinformationfromyouatsomepoint. Essentially,youshouldprioritisehavingup-to-datefinancialinformationaboutyourbusinessavailable.Thisway,asopportunitiesorchallengesarise,youareabletodealwiththeseproperly. Financialaccountsvsmanagementaccounts Therearetwodistincttypesofaccounts.Thefirstset,calledfinancialaccounts(sometimescalledstatutoryaccounts),arerequiredbylawtobeproducedbylimitedcompanieseachyear,inastandardformat,signedoffbyaregisteredauditorandfiledwiththeCompaniesRegistrationOffice(CRO).Thefinancialaccountscompriseofaprofitandlossaccount,abalancesheet,andadirectors’andauditors’report.Theformatforthesefinancialaccountsisoftenfollowedbysoletraders,partnershipsandotherentitiesaswell. Thesefinancialaccountsrelatetothebusinessinthepreviousyearortradingperiod.Whileusefulingivinginformationaboutthebusinessinthepast,theseaccountsdonotalwaysgiveagoodguidetocurrentbusinessperformanceorthetradingoutlook.Itmightbeayearormoresincethelastfinancialaccountswereprepared,andbusinessperformancecouldreallyhavechangedmateriallyinthemeantime.Thisiswheremanagementaccountscomein. Managementaccountsareproducedbyabusinesstohelpwiththeday-to-dayrunningofthebusiness.Theydonothavetofollowastandardformat,nordotheyneedtobeauditedorfiledwiththeCRO.Instead,youdecidewhattypeoffinancialinformationgetsproduced,howoften(usuallymonthly)aswellaswhatsortofcharts,projectionsandvarianceorotheranalysesareincluded. Theinformationsourcesusedinmanagementaccountsandfinancialaccountsisoftenthesame,justthatthebasisofpreparation,verificationandconventionsusedaredifferent. Generalformatofmanagementaccounts Whilemanagementaccountsdonothavetofollowasetformat,youwouldnormallyexpecttoseecertaincoreitemsincluded,withotheritemscoveredingreaterorlesserdepthornotatall,dependingonthetypeofbusinessandyourspecificinformationneeds. Coversheet Coversheet,statingthenameofthebusiness,theperiodcoveredbytheaccounts,adisclaimerrelatingtoconfidentiality,etc.  Amanagementsummary Amanagementsummary,coveringoneortwopagesatmost,pullingtogether: Bulletpointtextonthemainitemsofnote,bothpositiveandnegative,happeningduringtheperiode.g.tendersubmitted,orderwon,keystaffchanges Keyfinancialmetrics.Thesecouldinclude* oSales oMargin oCosts oOperatingprofit oCashatbank oCapitalexpenditureduringtheperiod oAgeddebtoranalysis oCreditoranalysis oStaffnumbers *Remember,youchoosewhattoincludehere.Toomuchinformationiscostlytoproduceandwillprobablynotbereviewed.Toolittle,andtheinformationwillmisssomethingimportant Profitandlossaccount  WritedownyourkeyP&Lheadingsonthecentreofthepage.It’softenatiptocompareperformanceagainstpreviousperiods,aswellasthefinancialplanfortheyear,soyoucouldconsiderthefollowing: Ontheleftsideofthepage,youcouldincludetheactualsagainstforecastfortheperiodcompleted,comparingthistothesameperiodlastyear,ifrelevant. Ontherightsideofthepage,showtheYeartoDatecumulativefigures(actual)againstforecastfortheperiod,andshowthefullyearforecast.Youshouldreviewtheforecastseveryfewmonths,sothatyouhaveanup-to-datepictureofhowthebusinessisperforming. Cashflowprojections Cashflowprojections,forthenextperiodahead,settingoutexpectedcashinandoutofthebusiness.SeetheThinkBusiness.ieGuidetoCashflowforreference. Performancevsbudget Instart-upsituations,orindeedwhenabusinessisexecutinganambitiousplan,itisusefultoconsideractualbusinessperformance,asmeasuredbytheprofitandlossaccount,versusthebusinessbudgetfortheperiod.Doingthiswillhelpkeepyourbusinessontrackandgiveanearlywarningthatanunrealisticbudgettargetwillnotbeachieved. BalanceSheet Periodically,youmaywanttoprepareasummarybalancesheetsettingouttheusualheadings:fixedassets,splitoutbymajorassetclass;currentassets,splitbetween stock,debtors,cashandprepayments;currentliabilities,brokenoutbycreditors,taxesandotherliabilities;andsourcesoffinance,suchasdebt,netassets,andshareholderfunds. 5ActionPoints Enlisttheservicesofagoodaccountant.Listentotheiradvice.Definethesortoffinancialinformationthatyouneedandhowoftenyouneedit. Becriticalindefiningyourinformationneeds.Theinformationmaybe“nicetohave”butitmaybedifficultorexpensivetoproduce,orworsestill,isneverreviewed.Therearemanyexcellentfinancialsoftwarepackagesavailable,sofindonethatworksforyou(andisrecommendedbyyouraccountant). Minimiseduplicationinthepreparationandpresentationofinformation.IfyouhaveaBoardofDirectors,forexample,youshouldbehappytosendthemthemanagementaccountsusedinthebusiness,ratherthancreatingaseparatereportindifferentformat.  Investyourtimeinunderstandingkeyfinancialsandwhattheysignify.Overtime,youwilldevelopa“feel”forthebusinessandtherelativeimportanceofvariousfinancialitems.  Bepreparedtoadjustyourbusinessplans,onthebasisofthemanagementaccountinformationthatyouarereceiving.Thereisnousewaitinguntiltheendoftheyeartoconfirmthatthebusinessisfacingdifficultieswhenyoucouldtakeaction,onthebasisoftheaccountinformation.  PreviousPost Howtodevelopadreamteam Nextarticle FitzgeraldKitchens:makingalastingmark PostList MyBusinessLife:IanBrowne,NDRC Latest GradguideCEOonmentoringandlandingadreamjobintech Latest €100mBrexitresponseschemeforagri-foodsector Latest Proudlysponsoredby Recommended Guide Acontentmarketingguideforbeginners Thelanguageofsales.It'sasweetthing. 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