Owners of fast-growing businesses often formulate the main problem as the impossibility to see the financial results of certain business areas, lack of financial analysis and control over the financial results of business in certain areas.
In response to the recommendations to put the management accounting, they ask to briefly and clearly tell what it is and where to start.
How management accounting is maintained in companies
Each business is a unique dynamic system, with a unique configuration of internal flows. These are business resource flows. The relationships between them are ideally described and designed based on the results of process analysis and engineering.
Operational management of commodity, information, documentary, human, financial flows is aimed at optimizing the business resources consumed to achieve KPI of each business process.
The rules of accounting for all business operations, actions and events are approved in the Accounting Policy and unequivocally interpret when, how, what information is collected from these flows over time and how it is reflected in the accounting.
Each business fact, each business transaction, according to the Rules, is continuously accounted for, including on the registers of analytical accounting, from which data 3 main financial reports are formed. Income statement, for the reporting period, Cash flow statement, for the reporting period, Balance sheet statement, as of the reporting date.
The depth of detail is introduced through the classifier of financial statements. The depth of analysis provided to the owner is determined by the owner himself, depending on how much he wants to immerse himself and analyze the results of the activity.
For example, he determines that it is enough to see the personnel remuneration expenses in one line “payroll (payroll)” in the reports on income and expenses and cash flow.
Or it requires reporting on payroll costs with details of employees’ salary expenses, separately by types of bonuses (regular, closed contracts, for implemented projects, for mentoring, etc.), on taxes from payroll, corporate events, social package, training, etc. And, say, not in general in terms of business, but in terms of each structural unit.
Or, another example. There are two owners in business. One of them determines the need for information on margin in the form of a percentage of sales revenue. It is provided with only two lines at the top of the financial statements: Revenue from sales, and under it the percentage of profitability on margin.
The second owner wants to see and analyze the full cost price in the context of costs of purchase, delivery, customs clearance, the proportion of the specific gravity of these items in the cost price. Therefore, between the lines of Revenue and Margin in the reports an additional block of information with a complete cost structure is indicated.
What is quality management accounting
Quality management accounting provides the owner with figures and a full set of analysts to control and develop the right solutions at any given time. Through regular financial and analytical reporting. Qualitative means reliable, regular, plan-fact, retrospective.
Reliable reporting should correctly reflect the full cycle of business operations for the period, financial results of the period, the real financial condition of the business, in strict compliance with the requirements of legislation to accounting.
Regularity and forms of regular management reporting are determined by the Regulations on Management Accounting Policy. It is important that the stated regularity is maintained in the operating activities continuously, so that users of information receive reports “day in day out”, as stated in the regulations on the formation and submission of reports.
The Plan-Fact format of management financial reporting shows each actual characteristic in the reporting against its planned value. For this purpose, the business plans the results of its activities for the coming year in advance, before its occurrence.
Financial planning, budgeting, is the filling in of the indicated 3 forms of the main financial reports with the planned indicators. Accordingly, during the year, each intra-annual reporting period (month, quarter, half-year, 9 months) the owner sees in the context of the plan-actual.
Why are financial statements just the tip of the iceberg
The main issue in setting a requirement for reliability of financial statements based on management accounting data is the understanding that it is a derivative of the general state of affairs in business, from the specific characteristics of general and operational management.
In order to make high demands to it it it is necessary to try very hard to build a business management system, which includes subsystems of process management, project management, internal control and audit, personnel management and motivation.
For creation of a mature homogeneous management system it is necessary to provide the motivated and qualitative personnel at places, to introduce process and design approaches to business management, to operate sector at a mature process level, continuously improve and optimize all directions of activity, to operate changes and risks, continuously supervising them.