How Looking Back Can Help You Move Forward – The power of management accounts for your business

Why do I need to prepare management accounts for my business?

Management accounts provide a snapshot as to how your business is performing at a moment in time and allow you to make decisions about the future of your business. When entering in to key business decisions such as capital expenditure, exploring growth and expansion opportunities or cutting costs they can provide a great starting point.

You may be surprised as to how costs have spiralled out of control and it only comes to light when you receive your annual accounts, by which point it is too late to resolve the issue. Monthly or quarterly management accounts allow you to monitor costs on a regular basis and tackle cost issues head on.

How management accounts help with tax planning?

Preparing regular management accounts can also assist in the tax planning process for your business. Establishing your business’s financial performance on a monthly or quarter basis can help with capital expenditure planning to gain capital allowances and with profit extraction.

Case study:

AAB assisted a fast growing and dynamic business struggling to keep control of costs and profit margin. The company had grown significantly in the past few years and the client did not feel their current business processes could handle the growth.

The profit margin was not as expected and there was no idea what the profit was on each contract they undertook.

With the help of Xero and some management accounts they were able to identify cost saving measures (such as renegotiating hire contracts and insurance) and also establish the contracts which weren’t generating any profit.

As a result the company changed their strategy to now “cherry pick” the contracts that are undertaken in order to generate profit for their business.

This shows how measuring the performance of your business on a regular basis can provide key information to help you make important business decisions and operate more effectively.

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