Management Accounts, Forecasts and Budgets

I recently read an article questioning if small businesses should be required to prepare accounts. The author argued that a small business owner knows how well their business was doing by the customers coming through the door and the cash balance in their bank.

In reply, an article in the following issue argued that the preparation of accounts was fundamental even for a small business.

Even if not needed by the business owner on a day to day basis, they would be needed for:

• Mortgage applications
• To quantify losses (to ensure these could be relieved)
• For selling the business – to evidence business performance.

In addition, the preparation of accounts provide a means of comparison each year and an incentive for good record keeping.

It can also be viewed that the accounting function can offer further benefits.

• The preparation of a budget gives an intended performance measure.
• Management accounts allows the business to see how it is preforming to date and comparison to the budget shows the owner if expectations will be met.
• Forecasts allow profitability and cash flow to be predicted and provide a longer term performance objective for the business.

As accountants, we believe understanding the accounts and their composition is essential for operating a business. The year-end accounts provide a record of performance and a comparison year on year. Management accounts and budgets allow the business to fully understand up to date performance and allow the management to act proactively when there are any problems or changes.

We are able to work with business to provide the support required to allow their accounting and reporting function to be developed and to aid with the analysis of the financial results.