Management Accounting
• Monthly (or quarterly) Management Accounts
Most small businesses start without the need for management accounts; the owners of the business are more than capable of monitoring their businesses and generally have a good handle on all aspects, especially the financial side.
However, as businesses grow and begin to prosper, it becomes more difficult to keep track of exactly everything that is happening - this includes the financial side. Many small businesses only produce accounts on an annual basis, predominantly for the HMRC and the bank. These figures do not provide the owners with timely and up to date information about their business. In addition, they are historical and consequently out of date.
Having a timely and accurate set of management accounts will enable business owners to monitor their business on a monthly or quarterly basis, identify where things are going well and where things may not be going so well and identify where any changes may be needed. As Chartered Management Accountants, we have the skills, the experience and the qualifications to help you achieve this. Also, it is likely banks and credit reference agencies will increasingly be looking for accurate and reliable monthly or quarterly management accounts to assess how your business is performing – they will often form part of your banking covenants.
Monthly management accounts and Key Performance Indicators (KPI’s), which may also be known as Management Information or MI will give you an accurate up to date picture of what your business is doing and how it is doing. They will also enable you to compare how you are doing for both your costs and income against how you were expecting to be doing in your budgets and forecasts. We can design a management accounting system for you, and discuss with you what may be appropriate KPI’s and implement these in your business. We can then continue to complete your management accounts for you on a monthly or quarterly basis or provide training for you to complete them for yourself, including the interpretation of the figures.
We are able to design and write a manual to help you to complete the management accounts yourself. We can, if required, offer you fixed price support if you choose to subsequently write your own management accounts. The following are some of the key features of the management accounting process that we can help you with, please feel free to call or email if you would like to know any more or if you have any specific requirement you would like us to help you with. There is no charge for our initial consultation.
An essential tool when forward planning for your business, either new or on an ongoing basis.
One of the key areas of management accounting is the Budgeting and Forecasting process. Budgets are what you plan to spend or receive over a specified period of time; Forecasts are what you think you are going to spend or receive over a given period of time based on past experience. Generally the budgeting and forecasting exercise will be done as one process.
Budgeting & Forecasting is usually done at the beginning of the year and will set out what you are expecting (or hoping) the business to achieve throughout the year. Whilst it is always good to be aspirational with your business, it is also essential to be realistic – if you are performing variance analysis between your actual costs and income against unrealistic budgets and forecasts, it may become disheartening if you continually fail to meet your planned figures. Sometimes budgets in themselves can become the master and everything can appear to become focused back to the budget. It is important to remember that budgets are only a tool to help businesses achieve their business objectives, and not an end in themselves.
It is also important to remember that a budget or forecast is a prediction of the future at a particular time; information you have at that time may be imperfect and circumstances may change. For this reason, it may be entirely appropriate to re-budget and re-forecast whenever circumstances change or to update budgets and forecasts to take account of changing circumstances. We are able to help you complete budgeting and forecasting process and help you steer clear of some of the pitfalls. We are also able to review your budgets and forecasts as necessary and we can help you make any amendments as circumstances and focus changes over a period of time.
Essential when starting out, moving in a new direction or considering pricing strategy.
Financial Modelling, Stress Testing, ‘What If’ analysis – all essentially the same thing and very complex sounding, but in essence, the concept of it is very straightforward. It is essential if you are starting a new business or looking to expand your business or undertake a new project, it can also be very useful when reviewing the products and services that you currently offer to see if you are making the desired profit margins.
Put very simply, it enables you to identify all the financial variables that go to make up the new business/expansion/project/current offering and to see what impact, if any, there will be if any of those variables change. It is absolutely crucial in helping to identify the breakeven point and determine whether you want to go ahead with the project. When talking about variables, it means anything that can change, for example it could mean the price of fuel, the cost of raw materials, rental or lease charges on plant or equipment, interest rates or inflation: the list is almost endless.
We can work with you to identify the relevant variables that will impact on your products and services to help you to optimise the best pricing strategy and indeed, even ascertain whether the product or service or project is viable or not. One note of caution, it is often very difficult to predict with absolute certainty the accurate cost of all the variables, so financial modelling is best used in with an eye on common sense!
Note: Should you need to determine standard costing for your products or services, please speak with us directly and we will be able to help.
How to manage your costs while maximising profitability or developing your business.
As your business grows and develops, the costs associated will grow with it as well. It is useful during this period to identify which costs are essential to your business, which costs are adding value and which costs may be unnecessary.
In addition to this, as your business develops and you offer a wider range of products and services, it can sometimes be difficult to accurately allocate overheads to specific products or services – particularly if they share the same overhead, e.g. a factory or salaried employees. This will be a key feature of setting prices to be sure that you are adequately covering costs and making the desired profit margins.
If you think you would benefit from some expert advice with your costing strategy, please do not hesitate to contact us – if you want some informal advice on the issue, we’ll not charge!
KPI's might sound like 'management speak' but they are, in fact, an essential tool to help you understand how well your business is performing.
Good use of KPI’s will help you identify where your business is performing well and where it may not be doing so well. KPI’s can take many forms and can be financial and non financial; for example, a telecoms company may measure how often engineers arrive within timescale against a benchmark of say 95%, or a restaurant may measure how many meals it serves on a Saturday night against an expected measure of 190, your gross profit margin may be 65% against an expected figure of 60%.
There can be an almost indeterminate list of KPI’s but is essential to select the ones that are going to accurately tell you how your business is performing. We can help you to determine which are good KPI’s to use and what they may be able to tell you about how your business is performing.
As with all things, it is always useful to have a range of different indicators as this will tell you a great deal more about how your business is performing as a whole rather than one single aspect of it.
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