How can management accounting be used effectively?

As a small businesses owner, success is always on your mind and if you dive deeper into your numbers using management accounting reports you can make more informed decisions for the future. Understanding your data can benefit you in a multitude of ways, from providing essential insights into your business operations to helping you lower expenses and improve profitability in the long run.

In this article, we take a look at how to use the information in a management accounting report.

The executive summary is your report condensed

Your report will start with an executive summary of the specific period the report covers – this is generally monthly but can be for an entire quarter. The summary gives you an overview of your financial information such as your profitability, income and general performance in the given period. As this section is essentially a shortened version of the entire report, you can refer to it to make a note of the main points regarding your performance. Compare your summaries each month – spotting trends will allow you to focus on money-earning areas.

Your cash summary can guide you towards managing expenses

The cash summary section of your report provides information about your cash flow, how much money is leaving your company and what’s coming in. The cash summary will give you tangible proof of what your money is being spent on and help you figure out where your profitability lies. Comparing your cash summary with previous reports can reveal whether a product is regularly bringing in revenue or doing poorly. You can rethink your budget if necessary or allocate more money to specific areas and reduce the budget for other areas. This is the perfect opportunity to slash your expenses.

Details are in the profit and loss report

This section of the report provides information about how much money you’ve gained or lost during the specified period. This is a vital tool for tracking how your business is doing, allowing you to compare your net profit and loss with past periods. You will hopefully see an increase but if you’re spotting a loss, you can address the cause and reconsider your business strategy accordingly.

Check your balance sheet to increase your assets

A financial statement detailing all your assets, liabilities and capital at the point in time that the report was generated, your balance sheet is your go-to for the financial position of your business. It’s a good idea to look at the balance sheet and figure out what your liabilities are and how you can reduce them.

Aged receivables and payables

These two sections of your report outline invoices that are yet to be paid out to you as well as any money you owe others. Check the data to figure out how healthy your business is financially.

Spot trends with Tax Agility

We’re small business accountants in London with a track record of helping companies make the best use of management accounting information available to them. We’re happy to meet with you at our Central London office on Cavendish Square or at our local offices in Putney and Richmond to discuss how to make your business thrive using management accounting reports.

Our philosophy is simple: You win, we win.