02 May

Management Accounts, yawn!

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What a boring subject. I would rather be talking about entrepreneurship, but this is important stuff! Should companies, even start-ups, have monthly management accounts? Entrepreneurs have a “feeling” of how a business is doing. A lot of business people will gauge the success of their business on how much money is in the bank.  While both methods might seem “adequate”, how do you really know what the actual situation of your company is? What are your trends? Are you growing or slowing down?


Management accounts are a necessity, period. Any entrepreneur worth their salt will make sure that they have monthly figures prepared by competent people. You need to know exactly how your business is doing financially and that can only be determined through management accounts. Although spouses can assist, it’s better to get the professionals involved.


It does not have to be an expensive exercise. The best option is to go for a monthly retainer that includes:

 

  • Management accounts;
  • VAT, PAYE and other returns;
  • CIPC returns;
  • Yearly financial statements;
  • Company tax return;
  • Personal tax returns.


For an average company R1, 500.00 per month should be sufficient to cover all the aspects detailed above. It is a good idea to have the same person that handles the company tax also handle the personal tax.


Also, management accounts should be compared to budgets. If you’re not on track to meet your own budgets, analyse why and fix the problem. We will be covering how to compile budgets and forecasts in our next blog. Again this is another process that is important.


Management accounts are not only important for the reasons stated above, but the following parties are also interested in seeing your results:

 

  • Bankers;
  • Your suppliers especially, if you want to negotiate extended terms;
  • Business partners.


If you’re trying to secure investors for your company, investors will ALWAYS ask for management accounts. It adds an enormous amount of credibility if they are properly prepared and you have a good understand as to where your company is financially. Furthermore they would probably conduct a due diligence, therefore your management accounts must be accurate. If during a due diligence process discrepancies are picked up, you can kiss your investor good bye.


In conclusion, have you hugged your accountant lately?

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Read 2604 times Last modified on Friday, 02 May 2014 12:32
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