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What Are Management Accounts? (And How to Prepare Them) 


Management accounts offer a window into your business’s financial status, aiding senior management in decision-making and implementation.

This practice holds significant value for all organisations—so regardless of your business size or industry, it facilitates comprehensive insights into past, present, and future financial standing across your entire business.

This article will provide you with an overview of how to prepare management accounts. 

First things first, exactly what are management accounts?

Management accounts, typically generated monthly or quarterly, provide a detailed overview of your company’s financial health. They include key components such as: 

  • A balance sheet. 
  • A cash flow statement. 
  • A brief report. 
  • A profit and loss account.

With accurate management reports, you can spot current business trends, address issues regularly, and track your business’s evolution.  

Although they are not a legal necessity and don’t need to be filed with HMRC, they will provide you with greater financial management than ever before and help your company expand.  

Why are management accounts important?

For any business aiming to grow and succeed, management accounts are essential.  
By keeping track of your income and spending regularly, you’ll gain valuable insights into your financial health and potential for growth.  
Continuous monitoring allows you to make informed decisions and adjust your strategies whenever necessary.  
Management accounts go beyond just looking at your bank balance – they take into account factors like upcoming expenses, revenue streams, and market conditions, giving you a full picture of your company’s finances.  
Quickly spotting sales trends helps you plan better and seize expansion opportunities, while understanding your profitability margins and trends enables you to make strategic decisions aimed at boosting your net profit.  
In short, management accounts provide you with the tools and information you need to thrive and succeed in today’s competitive business world.

How to prepare management accounts

Management accounts are most useful when they contain pertinent facts tailored to your business and are presented in an accessible format for colleagues throughout the company.

Here’s your step-by-step instructions on how to prepare management accounts: 

1. Gather data 

The cornerstone of management accounting rests on the quality and depth of your collected data. Without precise and pertinent data, any subsequent analysis and insights will be distorted.

You should consider:

Source identification: Determine your primary data sources, which may include accounting software, CRM systems, sales platforms, or manual records. Knowing where to extract data ensures crucial information isn’t overlooked.

Time period selection: Decide on the timeframe for which you’re preparing the management accounts. Whether it’s monthly, quarterly or annually, this will dictate the range of data you need to collect.

Data segregation: Categorise your data into sections. For financial data, this could mean segregating revenue, expenses, assets and liabilities. For operational data, segregate sales, production, inventory and customer feedback.

Automation tools: Explore tools and software for automating data gathering, saving time and reducing human error. Integrating different systems ensures seamless data flow and accuracy.

Data validation: Validate the gathered data for any anomalies, such as high expenses in a month or sudden sales spikes, to identify errors that need correction. 

2. Ensure accuracy

Ensuring data accuracy is essential. Inaccurate data can result in misguided decisions, potentially harming your business.

To ensure data accuracy you should employ: 

Cross-verification: Always verify the data collected by comparing it with external sources. For example, ensure that the bank balance in your accounting system matches actual bank statements. 

Reconciliation: Regularly reconcile accounts to identify and resolve any discrepancies. This includes verifying balances with HMRC, suppliers, and other stakeholders.

Audit trails: Maintain clear audit trails to ensure accuracy and trace any discrepancies back to their source. 

3. Produce financial statements

Financial statements form the foundation of management accounts, offering a comprehensive view of your company’s financial well-being.

You should draft a: 

Profit and loss report: This statement provides a comprehensive overview of the company’s revenue, expenses, and overall profitability within a defined period. Accurate categorisation of income and expenses is essential for understanding profit margins and operational efficiency.

Balance sheet: This document presents a snapshot of the company’s assets, liabilities, and equity at a specific moment in time. Regular updates and reviews of assets (such as inventory) and liabilities (like loans) are crucial to reflect the current state of the business accurately.

Cash flow statement: This statement offers insights into the company’s liquidity by illustrating cash inflows and outflows. It is essential for assessing the company’s ability to cover short-term liabilities and operational expenses.

4. Incorporate operational metrics

Operational metrics offer a detailed perspective on your business’s performance, enhancing the financial data.

You should consider:

Sales and production figures: Monitor monthly, quarterly, and yearly sales alongside production costs to assess efficiency and profitability.

Inventory levels: Track inventory levels to maintain optimal stock levels, minimising storage costs and ensuring timely deliveries.

Customer satisfaction metrics: Utilise tools such as Net Promoter Score (NPS) or customer satisfaction surveys to evaluate customer sentiments regarding your products or services, identifying areas for enhancement. 

5. Prepare an executive summary

An executive summary at the beginning of your management accounts can be very helpful. This section could highlight:

  • Key monthly data/figures. 
  • Notable changes or concerns. 
  • Net profit margins. 
  • Turnover ratios. 
  • A departmental overview. 

6. Analyse and interpret

When analysed and interpreted accurately, data becomes actionable insights.

Consider the following:

Trend analysis: Identify patterns in sales, expenses, and other key metrics. Recognising these trends early can help in capitalising on opportunities or mitigating risks.

Budget vs. actual: Compare forecasted budgets with actual figures to pinpoint overspending or areas of savings.

SWOT analysis: Conduct regular SWOT (Strengths, Weaknesses, Opportunities, Threats) analyses to inform strategic decisions and identify growth opportunities or potential challenges. 

7. Share the insights

Communication is key. Sharing insights ensures that all your stakeholders are on the same page.

You should consider:

Regular updates: Conduct frequent meetings with key stakeholders to review findings from management accounts, promoting alignment and informed decision-making.

Visual representation: Utilise charts, graphs, and other visual aids to present data, enhancing comprehension of complex information.

Recommendations: Don’t just present the data. Offer recommendations based on the insights. This proactive approach can guide the business towards better decision-making. 


How often are management accounts prepared?

While there’s no fixed schedule for preparing management accounts, the common practice is to do so monthly or quarterly, allowing business owners to maintain regular oversight of their finances. 

Can management accounts help secure new funding?

Yes, management accounts are crucial for securing new funding. They give investors and lenders a clear view of the company’s financial health and potential for growth, building confidence in potential funders.

How are management accounts different from statutory accounts?

Statutory accounts are primarily used for external reporting and regulatory compliance, while management accounts are internally focused, providing guidance for strategy, assessing financial position, and monitoring progress.

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