This is the second in a series of three blogs looking at the different types of essential financial information for a landscape gardening and design business owner.
In this blog we will explore management accounts and cover what they are, who they are for and their purpose. Most landscaping business owners will have heard of the term management accounts but not all will know what it means and what they are used for.
So, what are management accounts? Management accounts are financial reports that provide insight into the financial performance of a business during a given period. They are produced from online accounting software when the bookkeeping is up to date and accurate. They are called ‘management accounts’ because they are usually used by the owner or manager of a business to help them make informed strategic business decisions.
Management accounts are similar to statutory accounts but are produced in a more relaxed and flexible format to suit the business owner’s needs. Typically, management accounts consist of a profit and loss report, and a balance sheet which includes comparative figures from the last period or the same period last year. If it makes sense for a business to measure certain Key Performance Indicators (‘KPIs’), then management accounts can report on their performance as well.
A business owner usually measures their sales, has an idea of their bank balance, and knows their supplier purchases, but that’s about all. They may not know if specific jobs, or even the whole business, is profitable or not. It’s just guess work which can sometimes prove very wrong. A landscaping business owner needs to know their overhead cost so they can include this when quoting for a new job. This will help to make jobs more profitable.
Without regularly checking the management accounts, a landscaping business could be underachieving on profit and the owner may be taken by surprise with difficulties in cash flow. It is essential for a landscaping business owner to regularly review the management accounts and understand the meaning of the figures. A bookkeeper or accountant can help explain what the figures indicate about the state of a business and when an owner has this understanding, they can make informed, strategic decisions to improve the profitability of their business.
If a landscaping business owner is serious about increasing their profit, it is essential they organise the production of regular and timely management accounts. After all, what gets measured, gets improved.
