Hi, I’m Mitch Hahn, Partner at Nordens Chartered Accountants.
Today I am going to explain what Management Accounting is and how you can use it to help you become more successful.
Welcome to Nordens TV!
Management accounting is the process of preparing management reports and accounts that provide accurate and timely financial and statistical information to managers to make short- term and long-term decisions. It identifies, measures, analyses, interprets, and
communicates information to enable a business to pursue its goals.
Management accounting differs from financial accounting. While financial accounting provides information to people inside and, more importantly, people outside the business, management accounting is mostly aimed at aiding managers inside the business with
The Role of Management Accounting in a Business
Helping Forecast the Future:
Forecasting decision-making and answering questions, such as: Should the company invest in more equipment?
Should it diversify into different markets? Should it buy another
Management accounting helps in answering these critical questions and
forecasting the future trends in business.
Helping in Make-or-buy Decisions:
Is it cheaper to procure materials or a product from a third party or manufacture them in-house?
Cost and production availability are the deciding factors in this choice.
Through management accounting, insights will be developed which will enable decision-making at both operational and strategic levels.
Forecasting Cash Flows:
Predicting cash flows and the impact of cash flow on the business is essential.
How much cost will the company incur in the future?
Where will its revenues come from and will the
revenues increase or decrease in the future?
Management accounting involves designing of
budgets and trend charts, and managers use this information to decide how to allocate
money and resources to generate the projected growth.
Helping Understand Performance Variances:
Business performance discrepancies are variances between what was predicted and what is actually achieved. Management accounting uses analytical techniques to help the
management build on positive variances and manage the negative ones.
Analysing the Rate of Return:
Before embarking on a project that requires heavy investments, the company would need to analyse the expected rate of return (ROR). If given two or more investment opportunities, how should the company choose the most profitable one?
In how many years would the company break even on a project? What are the cash flows likely to be?
These are all vital questions that can be answered through management accounting.
Management accounting uses activity-based costing to decide what to produce, how much to spend on a product, how much it will cost to service a customer, and what customers and products are profitable.
They find the answers to these integral questions so that business
owners can focus on maximising revenue.
This has transformed how companies operate. Companies can no longer take vital decisions without considering the implications and outcomes. They can use intelligent analysis and management accounting to invest smartly, and at the same time prepare quickly for events
that might impact them negatively.
At Nordens, we're more than just accountants - we're business experts who can help you achieve your biggest goals.
Our specialist strategic division at Nordens boasts some of the leading entrepreneurial business minds in the country. We cater towards delivering consistent success stories, whilst helping businesses achieve above and beyond their initial goals.
Through highly-tailored guidance, coaching and advice, Nordens Strategic are able to define exactly how your business can reach new levels of success.
Regardless of how you define ‘success’ for your business, our strategic service is guaranteed to bring about real and lasting change. By partnering with some of the UK’s top business coaches, we’ll steer you along the path to a greater future.
Every business, no matter how big or small, needs to make the right decisions, and how to best manage your accounts can put huge question marks over your business. Accounting2You is here to take that pressure off and provide you with all the answers you need.
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In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier. The difficult part, for me, was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.
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