If you were to look through any company's financial statements, it would appear that financial accounting is the hero of the accounting world. But for small-business owners, managerial accounting might be the real workhorse. The difference between the two frameworks is mostly related to who uses the information created. The objectives of financial accounting are geared toward external users. However, the objectives of managerial accounting are geared toward the owner and managers. Understanding these objectives can help you tame this accounting workhorse for use around your neck of the woods.


One of the main objectives of managerial accounting is to allow small-business owners to plan for the future. Financial accounting is concerned mostly with the recording of past transactions, but managerial accounting is more focused on the future. This is why managerial accounting emphasizes timely information over precise information. For example, managerial accounting techniques often require companies to make an estimate of future costs as much as a year in advance. This estimate is then used to price products. As time goes on, the estimates are refined and better information is obtained. However, the company still is choosing timely information over precise information.


Once a small-business owner has a plan, she needs to be able to see how well she is working toward that plan. This is where controlling, the second objective of managerial accounting, comes in. Controlling activities often relate to assessing how well a business is doing at meeting organizational goals. Progress toward goals often is evaluated using performance reports. These reports compare planned performance to actual performance. Managerial accounting allows for much flexibility with these reports. Performance reports can be prepared for the company as a whole, on a divisional or store level, for a team or even for an individual. Once performance is assessed, this information feeds back into the planning phase to adjust activities and expectations for the next business cycle.


Perhaps the most beneficial objective of managerial accounting activity is to provide management and ownership with the ability to make data-driven decisions. Small-business owners must make many decisions every day. Before a business even opens, the owner must decide what products to sell, what customers to sell to, whether to make or buy products and how many people to hire, among other decisions. Managerial accounting provides methods for analysis and standard types of data to inform each of these choices. This allows management the opportunity to be objective decision-makers, which should allow for better decision-making over the life of the business.

Internal Reporting

While an objective of financial accounting is reporting for external financial statement users, managerial accounting has a focus on reporting as well. An objective of managerial accounting activity is to create reports for internal use. This is a highly customizable process. As a small-business owner, you know what information is the most useful when running your business. Managerial accounting reports, such as the balanced scorecard, allow you to combine traditional accounting information with non-financial information to analyze your company's strengths and opportunities for improvement. Unlike financial accounting statements, it is rare that two companies scorecards are exactly the same.