What are management accounts?

What management accounts means

Statutory year-end accounts are prepared for Companies House and HMRC, often months after the year has finished. Management accounts are for you. They are produced during the year, usually monthly or quarterly, and laid out to answer practical questions: are we making money, where is the cash going, and are we on track?

There is no legal format. They can be as simple as a profit and loss summary and balance sheet, or include budgets, forecasts, KPIs and commentary.

What they usually include

• Profit and loss for the month and year to date, compared with budget and last year
• Balance sheet showing cash, debtors and creditors
• Aged debtor and creditor reports
• Cash flow summary and forecast
• Key figures for your sector, such as gross margin, utilisation or average order value
• A short commentary on what changed and why

Example

A restaurant's September management accounts show sales up 8% on last September, but gross margin down from 68% to 63%. The commentary explains that two suppliers raised prices in August and the menu was not repriced. Wages are on budget, and the VAT quarter ends in October with £14,000 due.

The owner reprices six dishes, which brings margin back to 67% by November, and moves £14,000 into a separate account for VAT. Without monthly figures, the margin drop would only have shown up in the year-end accounts.

Why it matters for your business

Management accounts turn bookkeeping into decisions. They show problems while there is still time to act, give you the numbers to talk to a bank or investor, and help with tax planning before the year end rather than after. For a limited company, they also show whether there are enough distributable profits to pay a dividend safely.

How often should you prepare them?

Monthly suits most businesses with staff, stock or tight cash. Quarterly can be enough for a stable consultancy, and lines up neatly with VAT returns. The key is that your bookkeeping is up to date, because management accounts are only as good as the records behind them.

Getting started

Start simple: a monthly profit and loss against budget, a cash figure and an aged debtor list, with three lines of commentary. Add more only when you would act on it.