The Importance of Good Management Information - Steven McKenzie, Managing Director
Management information or, management accounts, is information produced for internal use to aid in strategy planning, business decisions, forecasting and analysis. It’s an essential tool in assessing your financial situation and making steps towards business growth. Different from statutory accounts or financial accounting, management accounts are produced for managers inside the business to aid in decision making and enabling you to pursue your goals.
Why you need it
To be able to make a decision, information is needed. Management information is important in helping you forecast for the future, analyse trends, identify and solve problems. If you don’t have any information, or the wrong kind of information, are you just gambling on the assumptions that your perceived knowledge is right? Without the right supporting evidence, you could make a poor strategy plan, or not respond to changes in the business environment effectively, setting you back and letting your competitors take advantage.
You don’t want to make decisions about your business from statutory accounts. Statutory accounts are a great tool to use for showing your position to external sources and clients at a particular point in the past. Management Information is invaluable when it comes to making decisions on strategy, direction and development based on the real time financial situation of the company.
What makes it useful?
It’s up to date information, enabling you to be pro-active rather than re-active with decisions and strategy planning.
Although management accounts are not mandatory, the information they can provide makes them an essential tool to utilise in your business. There is no standard format, so the accounts and KPI’s can be generated to meet the requirements of the information required.
Produced for internal use, management accounts can provide great detail of your financial position.
‘How much did we make this month?’ ‘Which product was the most profitable?’ Finding yourself asking a lot of questions on how different aspects of your business are performing? You should be able to look at the management accounts and immediately get answers to your questions. What questions are you asking about your business? Make sure the information needed to answer those questions is included in your management accounts.
How it can affect your business
Management information lets you make essential steps to adding value and growing your business, being produced on a monthly or quarterly basis, should this be when you require them, you have the most valuable information - Monthly reporting gives you a clear view of your financial position without waiting for your statutory accounts, which can be more than nine months out of date. Having monthly information allows for problems to be highlighted so you can be pro-active in assessing issues in your business, see your business strengths, and gauge where there are potential growth opportunities and where improvements need to be made.
Ensure the information you get is relevant, and well documented. Well documented will mean you can look back and track your growth, building a picture of your financial performance. Relevant information saves you time and you get the answers you need when you need them. Thus, allowing you to focus on what your company does best and raise the standard of success.
With the developments in cloud accounting technology, having up to date financial information to hand is possible. Cloud based software’s like XERO gives you access to your information, anywhere, anytime on any device, so you can have your accounts in your pocket, at a meeting or on the road. Using a cloud based accounting solution, working with your accountant and evaluating management information is important when making decisions for your business.