Management accounting is one of the four major areas of accounting. Management accounting enables the sharing of specific internal information that is not subject to the strict compliance of financial accounting. Methods for management accounting include formulas and reports that generate numerical information which can be applied to make your business run more profitably. The primary objective of management accounting is to provide a decision-making framework. Management accounting enables managers, marketing professionals, analysts and decision-makers to plan, control and make informed decisions within the business.
Profits are critical to business success, so it is important to track and report the costs associated with running a business. The profit and loss statement is the most obvious example of an accounting report that provides information about how much money your company is earning or losing at the end of the day. Custom accounting reports can also be extremely useful for evaluating your company’s profitability. If you’re able to track productivity relative to hours worked or the performance of each of your individual salespeople, you’ll be able to use this data to identify cost trends and potential problems. By interpreting the information in these customized accounting reports, management is able to make adjustments that will reduce costs and improve your company's profitability.
Management accounting also works towards the objective of helping your business to manage its assets and its cash flow. Your cash flow statement shows in detail how much money your company has coming in and going out, and effective use of this information helps you to avoid shortfalls and make the most of opportunities. If your cash flow statement shows that you probably won’t earn enough to cover expenses during an upcoming month, you can proactively seek financing so you’ll be able to cover your payroll and pay your bills. If you’re anticipating a surge in business during a particular season, this management accounting report is a useful tool for anticipating when you’ll need a capital infusion to ramp up production.
In addition to providing useful information about operations, management accounting is geared toward providing the information you need to make tax-related decisions in a timely and accurate manner. Management accounting can help you strategize about reducing your tax liability, such as investing in capital improvements during years when your company is especially profitable and is likely to owe taxes. Projects are often undertaken to reduce tax liabilities. Management accounting information can help identify areas where projects can be initiated that will improve profitability in the future while maximizing more immediate tax benefits.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.