At Bracey’s Accountants, we recognise the importance of management accounts for businesses of all sizes. These reports provide vital insights into financial performance, aiding in informed decision-making and strategic planning.  This guide will walk you through how to prepare management accounts and explain how partnering with a professional accountancy firm like Bracey’s can add value to your business.

Understanding Management Accounts

Management accounts are regular financial reports that provide detailed information about a company’s financial health and performance. Unlike statutory accounts, which are typically prepared annually for tax purposes, management accounts are usually produced monthly or quarterly and are intended for internal use by the company’s management team.

Selecting an Accounting System

Choosing the right accounting system is crucial for preparing accurate and timely management accounts. Here’s how to select an accounting system and how it integrates into each subsequent step: 1. Evaluate Your Business Needs Consider the size and complexity of your business. For SMEs, it’s essential to choose an accounting system that is user-friendly, scalable, and capable of handling your financial transactions. Some popular options include:

• Xero
• QuickBooks
• Sage

2. Key Features to Look For When selecting an accounting system, look for features that will support the preparation of management accounts:

• Automated Data Entry: Reduces manual entry errors and saves time.
• Real-Time Reporting: Provides up-to-date financial data.
• Automatic bank feeds: speeding up the entry of bank transactions

Bank Reconciliation: Simplifies the reconciliation process.

Customisable Reports: Allows you to tailor reports to your business needs.

Integration Capabilities: Can integrate with other business tools such as payroll, CRM, and inventory management.

Steps to Prepare Management Accounts

1. Set Up a Reliable Accounting System  Once you’ve selected your accounting system, ensure it is properly set up to capture all relevant financial data. Customise the chart of accounts to match your business structure and financial reporting needs. 2. Gather Financial Data Your accounting system should automate much of the data collection process. Ensure all sales, expenses, and other financial transactions are recorded accurately. Use integrated tools to pull data from various sources, such as:

• Sales Platforms: Sync with e-commerce platforms to capture revenue data.

Bank Accounts: Use bank feeds to import transaction data directly.

Expense Management Tools: Integrate with tools like Expensify to track expenses.

3. Reconcile Accounts Use the reconciliation features of your accounting system to match internal records with external statements. The system should help you identify discrepancies and provide a streamlined process for reconciliation:

• Automated Matching: The system can automatically match bank transactions with accounting entries.
• Exception Reporting: Highlight discrepancies that require manual intervention.

4. Identify your Profit or Cost Centres Your business may be a melting pot of different profit or cost centres. Breaking these areas down into separately identifiable units will enable you to analyse the performance of your business in greater detail which in turn will assist you in honing your overall or specific strategy with the ultimate aim of hitting your targets. 5. Prepare the Profit and Loss Statement Leverage your accounting system’s reporting capabilities to generate the P&L statement:

• Revenue Recognition: Ensure all income is recorded correctly and timely.
• Expense Categorisation: Properly categorise expenses to reflect true business costs.
• Automated Calculations: Use the system to automatically calculate net profit or loss.

6. Compile the Balance Sheet Generate a balance sheet using your accounting system’s capabilities:

• Asset Tracking: Ensure all assets are recorded, including current and non-current.
• Liability Management: Record all liabilities accurately.
• Equity Recording: Capture shareholder equity and retained earnings.

7. Calculate Key Performance Indicators (KPIs) Most accounting systems allow you to set up and monitor KPIs:

• Dashboard Views: Use dashboards to get an overview of key metrics.

Custom Reports: Generate reports tailored to your specific KPIs.

Trend Analysis: Analyse historical data to identify trends and patterns.

8. Review and Analyse the Reports Use your accounting system’s analytical tools to review and interpret the financial reports:

• Variance Analysis: Compare actual performance to budgets and forecasts.

Drill-Down Capabilities: Investigate details behind summary figures.

Scenario Analysis: Use forecasting tools to model different financial scenarios.

9. Generate the Cash Flow Statement Your accounting system should provide tools to track cash flows:

• Operating Activities: Monitor cash from daily operations.

Investing Activities: Track investments in assets and other expenditures.

Financing Activities: Record cash flows from financing activities, such as loans and equity transactions.

Why Work with Bracey’s Accountants?

While it is possible to prepare management accounts in-house, this is a time-intensive and expert practice that often requires additional oversight to ensure effectiveness and accuracy. Partnering with an experienced accountancy firm like Bracey’s offers several advantages: Expertise and Accuracy Our team of skilled accountants ensures that your management accounts are accurate, comprehensive, and compliant with the latest accounting standards. We have the expertise to identify and rectify errors that might be overlooked in-house. Time and Resource Efficiency Preparing management accounts can be time-consuming, especially for SMEs with limited resources. Outsourcing this task to Bracey’s allows you to focus on core business activities while we handle the financial reporting. Customised Reporting We tailor our services to meet your specific needs, providing customised reports that offer relevant insights into your business’s performance. This personalised approach helps in making informed strategic decisions. Strategic Advice Beyond preparing management accounts, we offer strategic advice to help you interpret the data and plan for the future. Our insights can guide you in areas such as cost control, revenue growth, and risk management.

Conclusion

Preparing management accounts is essential for understanding your business’s financial health and making informed decisions. While the process involves several steps, the benefits of having accurate and timely financial data are immense. Partnering with Bracey’s Accountants not only ensures the accuracy and reliability of your management accounts but also provides you with strategic insights to drive your business forward. For more information on how Bracey’s can assist with your management accounting needs, please contact us today. Let us help you take control of your business’s financial future.