As a business aiming to grow, you sometimes need to make big decisions to support that growth, often involving financial investments that may seem intimidating but will yield returns in the long run.
When making big decisions for your business, it’s essential that these decisions are informed, or you may cause financial damage that your business is unable to recover from. However, if you have not maintained a comprehensive record of your business’s accounts beyond your annual accounts, you may face challenges when it comes to making key decisions, and the reality is that you might not have an understanding of how your business is really performing.
This is where quarterly management accounts become a must-have for businesses, and at Tax Driven Accountants, we recommend that all businesses start using them.
Keep reading to find out more about the quarterly management accounts, and how having the right financial information to hand can help your business to stay on track long term.
What Are Quarterly Management Accounts?
With the introduction of Making Tax Digital, there has been a lot of confusion between the two, but quarterly management accounts aren’t linked to Making Tax Digital at all. You are not legally obligated to create quarterly management accounts, though we strongly recommend that you do.
Management accounts are regular, internal financial reports designed to give business owners a clear picture of their company’s financial position.
Quarterly management accounts are usually completed by in-house bookkeepers or accountants, and are crucial for understanding the financial health and informing financial decisions.
What’s Actually Inside a Set of Management Accounts?
Never created quarterly management accounts, and not sure what they contain? Here is what you can expect to see in quarterly management accounts.
Preparing Management Accounts: Profit and Loss Reports
Every quarterly management report should include an accurate account of the business’s revenue, costs and gross and net profit. It is crucial to record any incoming and outgoing costs as they occur. These financial statements are an essential part of your report, as they can stop overspending before it happens, as when you’re having a successful month, it can be easy to assume you can take liberties with your spending without considering any losses you’ve made.
Balance Sheet
A balance sheet basically provides you with a clear understanding of the financial value of your business at any given time. It covers all things financially linked to your business accounts and taxation, and gives you a full picture of your financial position. It accounts for money owed to your business, money owed by your business and also the value of any stock/inventory that you may have.
A balance sheet is a simplistic way to get an accurate picture of the money you have and the money you’re projected to have in the near future.
Cash Flow Statement
A cash flow statement is an essential component of your quarterly management accounts. It is a financial report that tracks the precise amount of cash and cash equivalents coming into and going out of a business over a specific period. This statement illustrates how effectively a company manages its cash position to meet its obligations, sustain its operations, and invest in growth.
This part of your quarterly management report is instrumental in evaluating your business and determining whether what you’re doing is actually paying off or whether your business plan and cashflow projections should be changed entirely.
Budget vs Actuals
A budget vs. actual report is a financial tool that shows how your expected spending and income compare to what you actually earned and spent. It helps you see where things are going as planned and where they might be different, which we call variances. This report is useful for keeping your finances in order and ties closely to the elements your business plan should include, helping you make smarter choices about your business’s money.
Key Performance Indicators
Every business, regardless of its size or industry, should establish Key Performance Indicators (KPIs) to effectively track and assess its financial health. KPIs serve as measurable values that indicate how well a company is achieving its key business objectives. By setting clear KPIs, businesses can gain insight into their performance, identify areas for improvement, and make informed decisions.
These KPIs can be anything from revenue growth to reducing outgoing costs, and keeping them in mind while operating your business can help you make smart choices between reports. Our guide on business tax planning tips covers some of the wider financial goals worth building into your KPIs.
Commentary and Analysis
Though this isn’t necessarily an essential part of quarterly reports, at Tax Driven Accountants, we think it’s important to provide commentary and analysis of a business’s financial performance for every report we prepare. Because we have a deep understanding of business finances, we can recommend ways businesses can improve their operations and make subtle changes that make a big difference.
Why Quarterly Management Accounts Matter for Your Business
In comparison to yearly reports, quarterly management accounts give you much greater control of your business by keeping you informed every step of the way. With quarterly management reports, you get ongoing internal data throughout the year, which allows you to remain in full control of your business.
We have seen far too many businesses that depend on annual reports be shocked to realise that their business is not in the financial position that they predicted, and then have to scramble to make quick choices to recover their finances. Keeping up with the latest news for business alongside your own figures helps you spot these issues before they become a crisis.
Quarterly vs Monthly vs Annual: Which Is Right for Your Business?
Though we generally recommend quarterly management reports, they are not the only option and depending on the size of your business, you may need to complete more frequent reports.
Monthly
If you have a fast-moving or high-turnover business, quarterly account reports may not be enough, especially if you operate in a volatile industry. If you have constant income and outgoings, you need to accurately track them to forecast your business’s financial health.
We would also recommend monthly accounts for newly established businesses, as doing regular financial audits as your business starts up gives you the information you need to maintain or improve your strategy. Our guide to accounting essentials for new UK businesses covers this in more detail.
Quarterly
If you do not feel your business needs monthly accounts, we recommend that all businesses maintain quarterly accounts as a bare minimum. Quarterly reports are sustainable and still provide enough information to enable you to make quick decisions in the best interests of your business, if necessary.
Annual
At Tax Driven Accountants, we believe that relying solely on annual reports is insufficient for any business. A lot can happen within a year, and if an issue remains unnoticed for that long, the potential damage can become severe and possibly irreversible.
We understand how time-consuming running a business can be, and it can be tempting to do the hard work as infrequently as possible, but this can have a detrimental effect on your business and hide real issues your business is facing. Our guide on how compliance services keep your business HMRC-safe explains why we will always recommend using accounting services to take care of your business’s finances, so you can focus on the things that really matter, with the assurance that your finances are being taken care of.
Stay in Control of Your Finances With Tax Driven Accountants
Through this guide, we hope to have emphasised the importance of quarterly management accounts and the difference they can make to your business’s finances. Too many businesses are unaware of their financial health and suffer as a result, but with the right support in place, keeping track of your business’s financial health (and ensuring it stays compliant) doesn’t have to feel like a chore.
At Tax Driven Accountants, we have helped countless businesses keep track of their financial health and, using this information, helped them grow. Take a look at our free resources, including tax calculators and rate guides, to start getting a better handle on your numbers today.
Do you need help with your business finances or want to understand quarterly management accounts better? Get in touch today.
