Company management accounts are important for any company that prioritises accuracy. This article focuses on outlining benefits of utilising a business management account and also providing s guide on how to build them.
We will be covering the following:
- What are management accounts and what do they offer
- The importance of management accounts
- Management accounts are frequently erroneous
- Utilising Skhokho for your management accounts
The purpose of management accounts is to keep track and report on a business’s financial performance. Financial analysis relies heavily on them.
Company Management Accounts fall into three different types: financial, operational, and performance.
- A financial management account divides expenses and income across various financial assets and obligations. Companies use it to assess its financial well being.
- An operational management account keeps a record of a company’s production and consumption. This method evaluates the efficiency and also success of the organisation.
- A performance management account collects data of how well an organisation is doing in terms of reaching its objectives. Companies make long-term strategic strategic choices for the future of the business using performance management account.
This blog is about discussing financial management accounts specifically. Afterwards, we will discuss operational and also performance management accounts.
What are management accounts and what do they offer
Financial Management Account are important aspects to a proper financial planning and drafting reports. They offer a brief summary of all the company’s financial transactions for a certain period. The included summary can assist companies with giving them the ability to track how they spend their money and how can they do better financial decision making.
Financial management includes some of these categories:
- Savings and bank balances
- Revenue and sales
- Cost of sales
- Administrative business expenses
- Operational business expenses
- The business assets – both current and non-current assets
- The business liabilities
- Owners equity
For instance; Revenue and sales – There is a need for a business to record all the revenue that they are generating for a certain timeframe. You can link this revenue with the sales and also other payments obtained by the company.
Within the same timeframe, the business stock will change due to the amount of product sold. The company should record these down within the stock account, accounted for under current assets of the company.
Furthermore, one of the main requirements for a company is to pay salaries and take care of other expenses. These expenses must be included between cost of sales and operational expenses and also administrative expenses accounts.
The combination of all these records form an FMA of the company.
Bare in mind that the FMA data is updated frequently(monthly). As soon as they are made, regularly check it and record every transaction. This keeps company management accounts accurate and they show the current financial state of the business.
The importance of management accounts
These tools are very crucial for a business because they provide a clear picture of how the business is performing and what is its financial state. They also assist owners with better decision making with regards to the future of the company.
Management accounts provide a wide variety of financial information, like income, expenses and also profit and loss.
Management accounts are frequently erroneous
These are the most common errors companies tend making when preparing management accounts:
Improperly tracking expenses and profits
It is super easy to lose track of the company’s expenses and profits if you are using no system to mange them. Smaller businesses are the ones who usually fail to track their records in one place. Invoices and receipts may be scattered all over the place. The business might end up spending a lot of money, hiring accountants for preparing statements when requested by investors of banks. Freelance accountants endup making lots of mistakes when dealing with books that they do not work with on daily basis.
Not properly classifying expenses, and not properly allocating expenses between business units
The second mistake is generally the mis-placement of transactions. Businesses with no use of a proper tool, only rely on an accountant that has to review a record for the whole month at a short period of time. This might lead to files being mis-placed and this could make the business to over-estimate or under estimate its financial state.
Failing to monitor financial goals and objectives
Goal setting and tracking is one of the most important aspects of a business. However, businesses overlook this mainly because many investors/banks do not list it as a requirement.
Skhokho CRM has an OKR app. This app can be integrated with your accounting software and gives you the ability to view your financial goals within your management account reports.
Bare in mind that you need to categorise the OKR as a financial OKR in the app so that it is included in your company management accounts.
Not taking into account employee salaries and benefits
The business cost of sales report should include employee salaries and costs. Moreover, data integration between your human resource management software (HRMS) and accounting software is needed. This gives you the ability to accurately incorporate the cost information linked with Payroll towards your management accounts.
The integration between HRMS and accounting software is automated within the skhokho app.
Manage your accounts better with skhokho accounting software. Skhokho automated most company accounts we have mentioned above.
Skhokho comes with a built-in invoicing system. It allows you to:
- Set up a client profile with the client’s address, contacts, etc.
- Write an invoice for the client and attach the invoice to a project
- Either email the client’s invoice directly from Skhokho or print it out and send it yourself
- To set the status of the invoice to paid after it has been paid
Once paid, these invoices are automatically added to your business’ sales account and are recorded in the management account. Another revenue account will manage the business’s other revenue.
The system allows employees to enter expenses in several ways: (1) submitting expenses, (2) submitting expenses for projects, (3) submitting expenses related to sales and marketing leads and also, (4) submitting expenses directly from the expenses app.
These expenses already have built-in expense accounts on Skhokho. Furthermore, the accounting manager can create additional accounts in addition to those provided by default.
Create your Financial OKRs
The OKR app allows you to set OKRs. Defining objectives for teams or individuals requires assigning them to a department.
Management accounts will include the objectives assigned to finance and as well as accounting.
OKRs are for:
- Increasing your sales and revenue
- and also lowering your costs
Issue a report
If and when necessary, management account reports can be generated directly from Skhokho. Gathering information from invoices, expenses, payroll and OKRs leads to issuing proper reports.
The management accounts also allow you to add new accounts for tracking and updating transactions manually. As an example, you could add a cash account, such as a bank account, to your business assets as cash equivalents every time the balance changes.
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Read more on Project Management here.
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