Year end Statutory Accounts and Management Accounts of Small Businesses

Importance of maintaining systematic accounting records

The aspect of accounting and preparation of financial statements is something that gets less attention in small businesses. The reason may be due to the fact that owners of the small and medium scale businesses are always pressurized on other matters such as cash flow of the business or some other form of regulatory issue.

But, at the end of the day it is the financial statements that reflect the true financial picture of the organization, and it needs to be prepared in accordance to some strict guidelines and standards. Hence, business owners need to pay extra attention to their accounting practices and internal financial controls.

The main purpose of the accounting function is to make sure that the finances of the business is properly managed anf the right internal controls are in place. Financial statements are prepared to meet statutory obligation. However, these statements are a valuable information source for both the management and investors to make decisions.

The extent of effort required in preparing the financial statements may depend on several factors  such as the size of thebusiness. the number of years in operation, company’s tax exposure etc. Professional accountants can help you with preparation of draft final accounts, statutory schedules, reconciliations of accounts, liaising with statutory auditors and finally preparing your complete statutory accounts for publication.

Management Accounts

Management accounts are critical to the success of a business. These can be prepared monthly, quarterly or half yearly depending on your specific business needs. It reflects the business’s profitability and variance, which is useful for managerial decision making. The management accounting package usually includes,

• Annual budgets and forecasts
• Monthly profit & loss accounts, with reports on variances from budgets
• Cash flow forecasts
• Analytical reports with regard to purchases, sales, stocks, employee costs, overhead expenses
• Business trends and key performance indicators
• Advice on key value drivers

What is the Necessity of Management Accounts?

Every business makes decisions on a day to day basis. Some of these decisions may have a direct impact on the business, whereas others can be ancillary. Whatever the decision, the financial impact of them is a mandatory concern of every decision maker. In such a context there has to be some helpful tools to decide whether a decision is going to be financially viable or not. The set of management accounts is the perfect toolkit that guides every decision maker in the right direction.

The major difference between financial accounts and management accounts is that financial accounts is prepared to meet regulatory requirements and thus published to the shareholders and general public, whereas management accounts is the sole discretion of the management. Management accounts are for internal purposes of the organization and therefore they are not published. The set of management accounts provides useful data on financial forecasts, budgets, variances and profit margins etc which are fundamental in decision making. Some of the many reasons as to why you should invest in a management accounting function are laid down below.

01. Improves Profitability
Management accountants can improve the profitability of the company by carefully analyzing each operational process. Cost allocation, waste reduction and efficiency reviews are tasks conducted by management accountants that may have significant impact on a company’s profits. In case of manufacturing organizations, reducing wasted production materials is another important area of management accounting. Poor production processing may create too much materials waste, increasing overall product costs. In the context of service sector organization, labour cost analysis is an important area in determining cost per job. Efficiency reviews will determine whether the company needs to make efficiency savings to improve the bottom line of the company.

02. Stronger Decision Making
Traditional business decision making consists of executive managers reviewing potential deals with other companies and pulling the trigger if they feel good about the decision. Management accountants help executive managers make that decision by giving them an objective review on the potential financial impact of the decision. Management accountants may also conduct sales forecasting, budgeting or cash flow calculations to determine the growth potential of future business decisions.
Contemporary organizations form management accounting teams for reviewing business decisions and determining how potential acquisitions or new product lines will affect current business operations.

03. Better Financial Reporting
Strong management accounting systems may improve financial reporting since management accountants are intimately involved with the collecting and reporting of financial information. Variances from current accounting policy found by management accountants can be corrected before financial statements are prepared and released to external stakeholders. Improved financial reporting may help a company secure debt or equity investments from outside sources as they portray the true financial picture of the organization.

04. The investment
One needs to make a significant investment on running a management accounting function. Apart from the labour cost, the business has to put in some kind of a system to integrate the information input and results of the management accounting system. Therefore, it is both a commitment of time and money. However, it should be remembered that this is an investment and not merely a cost as there are so many benefits that a business can experience from using management accounting data.

If the initial investment is an issue, one can always look at the option of outsourcing the management accounting function to a professional accounting firm. They will make sure that you will get the right results on a timely manner to make those important business decisions.

Through our experience we have seen that the benefi tthe business owners derive by using both the final accounts and management accounts. As explained above, final accounts is for compliance reasons and management accounts is for your decision making purpose.

We at KVS accountants help many businesses across various industries to make the best possible business decisions through the use of financial and managerial information. Our clientele includes many small to medium scale businesses from the area surrounding Putney, Putney Heath, Barnes, Barnes Common, Roehampton, Fulham

For further discussions of your financial and management accounting requirements and advice, get in touch with one of our experts. Our accountants will be able to help you assess and advise you on the most appropriate accounting (both financial and management) methodology suited for your business.

Contact us on or call on 020 7731 6131 for a free no obligation appointment.

KVS & Co. offers a range of accounting, general business services and personal business advise to individuals and businesses in the areas of Chelsea, fulham, Hammersmith, Putney and Wimbledon.

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