A survey conducted in 2013 by SKS Business Services showed that 45% of SMEs do not undertake regular management accounting processes. They are however a vital tool to help in making business decisions.
The Institute of Management Accountants describes it as: “Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy”.
Despite the fairly stodgy language they use, their definition makes it clear that management accounts are completely different from financial statements; which tend to be based on historical information, whilst management accounts are forward looking.
Instead of giving stakeholders a picture of past performance then, management accounts provide the information needed to move forward and make significant business decisions. Without the information they provide, decision makers are groping around in the dark.
They often include details including what cash a business has to hand, cashflow forecasts and growth forecasts. Worst and best case scenarios can also be outlined, allowing business leaders to create contingency plans.
In 2014, despite growing economic confidence, we remain in a position where bank finance is still pretty tricky to come by, so it’s key that businesses retain a vice-like grip on them, to avoid cashflow or other financial issues.
Management accounts and associated forecasts allow any such issues to be predicted, enabling decision makers to plan in advance and avoid them.