When you’re looking to raise money for your business, it pays to be able to tell the right story to your investor. That’s why management accounts are a key way to secure funding.
Despite what many owners assume, just having money sitting in your business bank account is not enough to mark your business as an attractive lending prospect. In an era where high street banks are being more selective in who they finance, being able to provide accurate, current data on your business performance can help you secure faster investment, better terms and an easier experience.
In this post we explain why investors value management accounts, how they can help you secure the best funding and the steps to implement them in your business.
What are management accounts?
Management accounts are regular financial reports that provide up-to-date, detailed insights into your business’s financial position. Unlike annual accounts, which you prepare once a year (and which often focus on compliance), management accounts are designed specifically for internal use.
They allow you, as the owner-manager, to make informed decisions throughout the year, rather than waiting until year-end to discover whether you've made money or lost it.
Typical management accounts include:
- Profit & Loss Statements (P&L): Clearly show your revenue (sales income) minus expenses, resulting in your profit (or loss).
- Balance Sheets: Detail your business’s assets (what you own), liabilities (what you owe), and equity (the overall financial value held in the business).
- Cash Flow Statements: Track how cash actually moves through your business, from sales to operational costs, highlighting liquidity.
- Key Performance Indicators (KPIs): Metrics customised specifically to track your business goals, such as growth rates, profit margins, or customer acquisition costs.
What do investors look for in an investment opportunity?
When you approach an investor, whether for growth, equipment or expansion, their main concern is your business’s ability to maximise their returns. In short, they're gauging your risk. To do this, investors typically look for signs of financial health and stability, such as:
1. Profitability:
Are you consistently generating enough profit to comfortably cover repayments?
2. Low Liabilities:
Are your current debts manageable, or will additional borrowing place undue strain on the business?
3. High-Quality Assets:
Do you own valuable assets (like property, vehicles, or machinery) that could secure the loan?
4. Healthy Reserves:
Do you have enough retained profits or cash reserves to handle unexpected costs or economic downturns?
5. Credible Team:
Do you have solid management team that possesses the necessary skills, experience and qualities to support the firm’s success?
Management accounts, generated regularly, help investors quickly and clearly assess these factors as well as improving your chances for success.
How do management accounts help in the investment process?
When you approach an investor, clarity is key. Investors prefer detailed, accurate, and up-to-date financial information, which is exactly what management accounts provide.
Unlike annual accounts, management accounts deliver current insights into your business's true financial health, increasing your credibility and improving your likelihood of securing funding.
- Show current revenue trends clearly: If your previous annual accounts reflect a tough year, investors might hesitate. However, management accounts can show recent improvements, such as increased turnover or improved profit margins, demonstrating your business’s true potential.
- Provide up-to-date performance information: Monthly or quarterly management accounts give investors a timely picture of your finances, helping them make quicker decisions and reducing uncertainty.
- Enable ‘What-if’ scenario planning: Investors can clearly model different scenarios (amounts, terms, etc), helping them ensure whatever they offer you is in alignment.
How to set up effective management accounts in your business
The key to success with management accounts is starting before you urgently need funding, since a longer record helps you prove your finance bona fides over the long term. This is one of the reasons why startups can benefit so much from management accounts.
Here’s how our team at Haines Watts work with clients to set up management accounts:
1. Set the Goals: We discuss what’s important to your business to decide what information you need and how frequently you need it to make these reports genuinely useful and relevant to your daily decision-making.
2. Utilising Accounting Software: Cloud-based platforms like Xero allow us to automate and customise your management accounts. This simplifies creating monthly reports, meaning the information you rely on is both accurate and timely.
3. Setting Clear KPIs: We identify and regularly track the key metrics that truly reflect your business success, such as sales growth, profit margins, cost control, or customer retention rates.
4. Expert Reviews and Meetings: We hold monthly or quarterly financial reviews, sharing the accounts two or three days before the meetings, clearly presented and discussed face-to-face. This ensures you understand the numbers, see emerging trends, and can respond proactively.
Make management accounts work for you
Whether you’re looking to secure funding or just run your business more effectively, management accounts can give you the information and control you need to make the right decisions.
At Haines Watts, we work as an extension of your business, focusing on building long-term value and enhancing your existing processes. When it comes to management accounts, our experts help create systems that deliver reliable, current information that you can use on a day to day basis. Combined with analysis based on years of experience, we can help you make the best application for funding and make the most of your capital.
To find out how we can help you secure your business's future with better data, get in touch today.
