Improve your business cash flow with good management accounting

Management accounting provides business owners with the information they need to make informed decisions. With accurate, timely financial information, business owners can make informed decisions about operation items such as cutting costs, increasing production, reducing stocks or adjusting marketing budgets for example.

Management accounting can not only help save your business money and make you more competitive, but with good management information, you can also improve your business cash flow.

Management accounting provides you with a profit and loss account and balance sheet. These will enable you to calculate some useful ratios such as profitability ratios, liquidity ratios and activity ratios. Conducting ratio analysis will alert to any impending cash flow crisis and enable you to take corrective action quickly.

Seasonal Businesses

Seasonal businesses which are more likely than others to face irregular cash flow patterns will benefit from having monthly or quarterly management accounts. They will enable you to plan ahead to cover any slow periods and avoid having to use quick and often costly forms of finance to deal with any cash flow problems.

If finance is required to help ease cash flow problems, management accounting will enable you to better anticipate your requirements for funding. Banks and other providers of finance will want to see quality management information in order to consider your business for finance or re-financing. Having good management information to hand will not only add credibility to your business but can help improve your chances of securing funding.

Advantages of good management accounting

Good management accounting will allow you to take advantage of any tax planning opportunities before the year-end. You are much more likely to increase your allowances and reliefs by reviewing your position before year-end.

Reviewing your management accounts frequently can also help business owners to quickly identify any inefficiencies and wastage in areas such as sales, margins, costs and profit, and to take corrective action where necessary.

If you only review your accounts once a year, you won’t be aware of any looming cash flow problems for your business. Left undetected can result in you being unable to pay your suppliers, payroll or taxman which ultimately can lead to business failure. Having monthly or quarterly management accounts will provide you with foresight, enabling you to make proactive decisions to help improve your business cash flow as opposed to being reactive, when it could be too late.