It is a common myth that management accounting is used purely by the big end of town. Almost all small to medium sized businesses can benefit from the use of management accounting at some point to make important decisions on the direction they take, and when they take them. But was is management accounting? When is it needed? And, what is involved?
What is management accounting?
Management Accounting differs from regular accounting. The easiest way to compare management accounting to regular accounting is that regular accounting and bookkeeping looks backwards and reports on what has happened in the past. Whereas management accounting looks forwards using reliable data to forecast what will happen with your business into the future.
When is management accounting needed?
Management accounting can help with any future planning a business may require. This generally revolves around a few main areas:
- Pricing of products and services – Deciding what price to properly charge for a product or service is crucial. Management accountants can help by taking into account both the fixed and variable costs of your business, competitors prices and how much you need for your business to achieve its short and long term goals.
- Product lifecycle – All products go through a similar life-cycle pattern beginning with growth to maturity and eventual decline. Knowing where your products are on that lifecycle is important to ensure long-term sustainability. Timing the launch of a new product to replace a declining product will also go towards maintaining a consistency in ongoing revenue. Management accountants can conduct this analysis and give the right advice.
- Staffing – Deciding if and when to take on extra staff is a big commitment. The costs of doing so must justify the reward and more. Working out the return on investment of hiring staff involves more than just the intended salary. There are overheads such as recruitment, providing tools of the trade and also time managerial supervision. Management accountants help work out all these costs to help decide if hiring more staff is the right move and if the demand is a permanent or temporary one.
- New premises – Knowing when to move to bigger premises, open another premise or expand into a new service area is difficult. Will the investment pay off? Is it the right time to scale operations? Management accounting can help crunch the numbers to provide reliable data to work from.
Proactive accounting
Management accountants are by nature proactive. This means they will look for opportunities and bring things to the business owner’s attention that need addressing. Regular accountants may of course do this too, however properly trained management accountants have the skills to provide thorough statistical analysis of reliable financial data.
Getting a management accountant to assist in analysing your business is a good idea if you have an upcoming decision to make on the future of your business. Even if you don’t, having a management accountant regularly look over your books can help pinpoint decisions that need to be made for ongoing business success.
Management Accounting on the Central Coast
Saige Accounting offers management accounting services on the Central Coast in addition to its regular accounting and bookkeeping services. Our management accountants are skilled to provide you with the insights you need to make well-informed decisions about the future of your business. Talk to us about how our management accountant can assist you.
