What do you think of when you hear the phrase “management accounts”? As someone who has had a career in accountancy for over twenty years, I think of the tool that we use to understand how my business has been performing for the last few weeks or months and where my business is today. However, I’m pretty sure there are many business people who see them as that pack of paper that either their accountant sends them a bill for, or their internal accountant prepares and you’ll get around to looking at when you’ve dealt with the 1001 other things that require your attention.
At a time when the market in the North-East is showing signs of recovery, it is probably more important than ever to take advantage of your accountant’s good work and understand what the numbers look like. So many businesses have had to cut costs and make sacrifices to get through the recent difficulties, but if things are truly on the up, the risk of trying to do too much too quickly, without understanding the implications for the business, can be fatal.
Myself and others have written any number of articles over the years that can be summarised in three simple words - “cash is king”. There is no doubt that this remains absolutely the case today, and when growth is anticipated, it is critical to success. Understanding where your business is today and how is has been performing, are the key factors in understanding where the business is going.
If your business can be paid by your customers before you have to pay your suppliers and employees and you have your profit margins correctly calculated, then congratulations - your business is only limited by how much you can sell. Well, so long as you’ve factored in how to finance the purchase of the equipment you need, and considered any seasonality of sales, and factored in the risk of any bad debts, and considered the impact of any changes in interest rates on your borrowing costs… In short, even a business that is in the best position to be successful can suffer if all pertinent factors are not considered.
However, I would not want to be pour cold water on any business’ efforts to grow and become more profitable and successful. An improvement in market conditions gives the perfect opportunity to do exactly that. But maybe your business needs a change in structure to achieve that growth. Restructuring professionals can provide advice on business planning, fund raising, changing the way the business is financed, or alternative funding options. These options may be the key to unlocking sustainable growth, and it may all start with those management accounts in your top drawer.
For more information please contact Neil Dempsey (email@example.com) or your usual AAB contact.