Management is the use of statistical and financial information to provide managers with the information they require to make decisions for the company. Unlike financial accounting, management accounting produces reports on various aspects of the business, which could include sales receipts, cash flow or even the performance of a particular product. Reports produced are for internal use rather than for external stakeholders of a company.
Improving cash flow
A management accounting service will be based on both historical and recent financial activity to produce a viable budget for the company’s future. By analysing the financial information, realistic budgets can be produced for the whole company. Larger companies may use management accounting for each individual business department, so that each one produces a budget to feed into the whole company’s plan. Experts will analyse the company’s expenditure to rule out anything unnecessary and focus on needed expenditure.
Reducing expenses
The expenses of a company can be reduced by using management accounting. The system can be used to focus on the cost of resources within a business so that stakeholders know how much is required to run the company. It may be possible to make changes based on management accounting data, like using cheaper raw materials for a product if the analysis indicates that quality will not be compromised. By producing and studying various reports produced, it is possible to cut out unnecessary expense and potentially increase the profit margins on each product or service.
Increasing the financial returns of the company
Forecasts can be prepared to demonstrate many aspects of a business. This includes data to demonstrate the effects of price changes on the local markets, and how products can still be produced at a profit without increasing the price. The forecasts may also be used to keep a track on competition and how this could affect the business, along with demand for a particular product.
Making effective decisions
Rather than making decisions based purely on finance of a company, management accounting provides information about the qualities of a business, like expertise of management or research and development prospects. Other aspects of the company are analysed in addition to the financial data, providing a reliable basis for decisions.
Management accounting is not legally required by a company, but it does provide many advantages over competitors. If you would like to know more, or can tell us how management accounting helped your company, contact us today.