Budgets are important part of every single person’s life. In business language management accounting and budgets are strictly speaking money terms.
However, talking on a personal level, we make budget decisions in our every day life. We often make decisions based on past experiences. We not only try and learn from pass mistakes but also try to improve our future actions.
You can think of budgets as a simple tool where you put a plan in order to improve something in the future.
Just like when you go to a pub with friends. You intend to spend only £20 but in the end you end up spending £40. Next day, you wake up and you start analyzing what happened that you’ve spend £40 instead of £20. But that’s way more simple that a business plan.
Every business needs to have a plan. Budgets provide businesses with the opportunity to review past business information. Consider any new information available and put a plan for the next year so that it has a framework for future growth.
After the business set up its budget, management accounts and various monitoring techniques are employed. This allows the business to understand whether it is on track with budget. That way it can stay on course to meet targets.
Businesses will use important metrics such as variance analysis where they will compare actual results to budget. Companies employ corrective actions if the results were not satisfactory or try to maintain current business practices if results are on track with budget.
Management accounts are often a fiddly area especially if the person doing it does not understand accounting.
When producing and presenting the management accounts to the management of the business they need to tell a story. This story needs to be easy to understand by people without prior accounting knowledge, but also compelling enough for this part of the management team that has a strong financial background.
Contact us to discuss the needs of your business. We will advice and support you every step of the way.