Most limited company owners receive a set of annual accounts once a year, prepared months after their year end. By the time you see the numbers, the year is long gone and the information is of limited use for running the business. Management accounts change that by giving you timely, relevant financial information throughout the year.
What Are Management Accounts?
Management accounts are a set of financial reports prepared on a regular basis, typically monthly or quarterly, that give you a clear picture of how your business is performing right now. Unlike statutory accounts, which are prepared for Companies House and HMRC, management accounts are prepared for you as the business owner.
A standard set of management accounts includes a profit and loss account and a balance sheet. They are often accompanied by commentary that explains the key movements and flags anything that needs attention.
What Can They Help You Decide?
With up-to-date management accounts you can make confident decisions about pricing, hiring, investment, and drawings. Without them, you are making significant financial decisions based on guesswork or outdated information.
- Can I afford to hire someone?
- Is my gross margin healthy enough to support my overhead?
- Am I on track to hit my revenue target?
- How much can I take in dividends this quarter?
- Is my cash position going to hold up over the next three months?
Monthly vs Quarterly
How often you need management accounts depends on the pace of your business. If you have significant monthly costs, are growing quickly, or carry stock and debtors, monthly accounts give you the visibility you need. If your business is relatively stable with predictable revenue and costs, quarterly accounts may be sufficient.
As a general rule, the faster your business is moving, the more frequently you need to see the numbers.
A Practical Example
Sarah runs a marketing agency with six staff and revenues of around £600,000 per year. She receives monthly management accounts and uses them to track her gross margin each month. When her margin dipped below 40% in March, the accounts flagged it immediately. She identified that one client project had overrun significantly, fixed the pricing on renewal, and restored her margin within two months. Without monthly accounts, she might not have noticed until her year-end results came in.
Key Takeaways
- Management accounts are prepared regularly throughout the year, not just at year end
- They give you a profit and loss account and a balance sheet
- They allow you to make informed decisions about hiring, pricing, investment, and drawings
- Monthly accounts suit fast-growing or complex businesses; quarterly works for more stable ones
- Without them, you are running your business on outdated information
How Traction Can Help
Management accounts are included in our Professional and Premium packages, giving you a clear and up-to-date picture of how your business is performing. If you would like to find out more, please get in touch.