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Are you a startup founder buried under an ever-growing to-do list? It's tempting to focus solely on immediate tasks, sidelining strategic tools like management accounts. However, overlooking these can mean missing out on valuable insights crucial for your business's success.
When you’re starting out with limited resources and big plans, it’s essential to be sure you’re on track to reach your goals and making the most of the assets you have. Management accounts are a flexible way to check-in on the key processes in your business to make sure they’re aligned with your goals. And with modern accounting tools, they don’t have to be a major investment.
Here Haines Watts Partner Stuart Penny explains how having the right data to hand helps you create a sound basis for investment decisions and build a more strategic relationship with your advisor.
What are management accounts?
While your accounting software can help you keep track of your day-to-day financial metrics, management accounts provide a targeted level of detail that highlights the key metrics that matter to you.
Management accounts are financial reports, prepared monthly or quarterly, give you the inside track on how your business is really performing. They cover profit and loss, balance sheets, cash flow forecasts, and key performance indicators (KPIs). But unlike year-end accounts, which are mostly for HMRC, management accounts are for you—to help you run your business better, not just tick a compliance box.
What is the point of management accounts in practice?
The goal is simple: to give you a clear, up-to-date picture of your business so you can make decisions based on facts, not guesses. They help answer questions like:
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Are we actually making money, or just busy?
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Where is the cash going?
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Which products or services are profitable?
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Can we afford to hire that new person or invest in new equipment?
Without management accounts, you risk flying blind. You might think everything’s fine because sales are up, but if you’re losing money on each sale, you won’t know until it’s too late. And this is especially important at the startup stage, where cash is often tight.
5 Reasons why startups can’t ignore management accounts
Management accounts may sound like they’re just for big companies, but they can provide valuable insights at all stages of your business, include when you’re starting out. Major advantages include:
1. They catch issues early:
Startups often focus on growth at all costs. But revenue doesn’t equal profit. Management accounts highlight if you’re underpricing products, overspending on overheads, or simply running an unprofitable business model. Catching these issues early makes them easier (and cheaper) to fix.
2. You can boost your decision-making:
In a startup, things change fast. One month you’re focused on growth, the next you’re worried about cash flow. Management accounts give you real-time data, so you can pivot quickly. For example, if you’re looking to grow your team, you can see where you can deploy their time most profitably.
3. Track your real cash flow:
A common mistake among first time entrepreneurs is assuming that being profitable means having cash. Not true. You might be profitable on paper but cash-poor because clients are slow to pay. Management accounts track cash flow, helping you understand your payables and receivables in more detail.
4. Build investor confidence:
Investors love numbers. If you’re trying to raise funds, showing you have regular management accounts proves you’re on top of your finances. It builds trust and makes you look like a serious business, not just someone with a good idea.
5. Truly understand your business:
Startups evolve quickly. You might start selling one thing and pivot to something completely different within a year. Management accounts help you understand what’s working and what’s not, so you can double down on the parts that work and ditch the rest.
6 steps to maximise the value of management accounts
The key benefit of management accounts for startups is their ability to show you exactly what you need to see. But that only works if you use the data in the right way. Here’s how to make sure you’re getting the most value out of your management accounts:
1. Make them specific:
Don’t settle for generic reports. If you’re running an e-commerce site, you’ll want to track different metrics than a consultancy firm. Focus on the numbers that matter to your business and build them into your reporting. This could be profit margins, customer acquisition costs, or cash flow forecasts.
2. Regular reviews:
Producing management accounts is just step one. The real value comes from reviewing them regularly. Set time each month to go through the numbers, look for trends and discuss them with your accountant.
3. Connect them to your strategy:
Management accounts aren’t just about looking back; they’re about planning ahead. Use them to track progress towards your goals. Are you hitting sales targets? Is your marketing spend delivering a return?
4. Identify red flags early:
Compare your actual performance to your budget. If costs are creeping up or profits are falling, dig into the details. Early detection means you can take corrective action before problems get out of hand.
5. Make the most of technology:
Use accounting software like Xero or QuickBooks to ensure you have the right data to power your business. These can help you centralise and automate data gathering, making it easier to generate reports and spot trends without getting lost in spreadsheets.
6. Get the right support:
A good accountant doesn’t just crunch numbers; they help you understand them. Working with an experienced advisor can help you spot issues you might miss and offer advice on how to improve.
When it comes to producing and analysing management accounts, many businesses choose to work with an accountant who can provide insight from their experience working with other businesses and offer additional value.
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Unlocking the value of management accounts with Haines Watts
Running your own business comes with daily challenges and opportunities. That’s why having the right advice in your corner matters. At Haines Watts, our business advisors go beyond accounts to work alongside you and help make sense of the numbers, so you can focus on what matters.
