Why Your Business Needs a Managerial Accounting System and a Management Accountant
Small businesses fail regularly.
They fail because there never was a business case for their creation. They fail because their business model is flawed. They fail because there is no written business plan. They fail because no founder is qualified to be at the same time the CEO, the COO and the CFO.
See our post http://www.abrajtman.com/how-to-make-a-business-case-for-starting-the-business/
Why Your Business Needs a Managerial Accounting System
A properly run business requires a strong managerial accounting system. Unlike most small businesses that rely on their annual statements prepared months after the year end, a managerial accounting system provides information updated within days of any activity.
It allows for simultaneous access for all management team members, to review and discuss issues. No need to wait for the bookkeeper to finalize the statements, to print them and perhaps send them out before the meeting. The data is available immediately to be examined and for raising issues.
Because the information is current, the CEO and their accountants can immediately focus on variances. Because the data is current, poor decisions relying on out of date information are eliminated.
Because the problems are caught early, the year end accounting costs are significantly reduced.
There is no need for management team members to struggle with accounting issues because the accountants are always there either online or via virtual meeting to provide explanations.
The issues faced are forward looking not retroactive as with financial accounting systems.
A solid managerial accounting system integrates other data such as customer tracking to the accounting data.
It connects inventory and sales from a cash register to the accounting system.
It utilizes dashboards to visually present key information instead of struggling through the financial statements.
A proper Managerial Accounting System function must include the following items:
- Generation of cash flow forecasts
- Preparation of budgets
- Measurement of key performance indicators
- Submission of variance from budgets reports
- Measurement of profitability of projects,
- Measurement of profitability of products
- Measurement of profitability of marketing activities
having a managerial accounting system in place is a fundamental practice of running an efficient business. It enables the CEO to analyse their business so as to make informed business decisions and forward-looking projections.
Review the table below. It indicates real problems faced by businesses that a proper managerial accounting system will deal with.
Which problems is your business facing and how to deal with them
|Too much cash tied up in receivables||Construct an effective Working Capital Management Program|
|Too much Inventory||Construct an effective Working Capital Management Program|
|Capital items financed out of working capital||Construct an effective Working Capital Management Program|
|Current liabilities too high||Construct an effective Working Capital Management Program|
|No cash flow forecasting and monitoring system||Construct an effective Working Capital Management Program|
|Cash flow problems||Construct an effective Working Capital Management Program|
|Need for more funding||Health of Your Business Diagnostic|
|No idea of the value of their business||Value of the Business Diagnostic|
|Profitability not high enough||Health of Your Business Diagnostic|
|No benchmarks to measure against||Health of Your Business Diagnostic|
|No management reporting system||Effective Financial Management|
|Unable to find a buyer for the business||Create an exit strategy|
|Unable to get a fair offer for the business||Create a Business Valuation marketing Plan|
Why Your Business Needs Management Accountants
Aron Brajtman CPA’s and Business Advisors can help with the above challenges. Unlike the traditional auditor we are more concerned with your future performance and successful operations than with your taxes and year end results.
We generate management accounting information that differs from that used for financial statement purposes.
The information is forward looking not historical. The information generated is used to provide variance reports and support decision making.
The information reports on the company as a whole but more importantly it provides information on individual products, projects, departments including the return on marketing efforts.
A properly run business shows a strong orientation to measuring and evaluating performance.
In our view, management accounting is at the lifeblood of all well run businesses, and is used to drive performance, inform strategy, maximise profit, enable comprehensive analyses and highlight issues.
Businesses do not succeed and prosper on their own. The most successful organizations team up with trusted advisors to help them achieve results that would not have been reachable alone.