What is management accounting and why is it important for business?

You may think that management accounting is something that only applies to big businesses. This is a common misconception. The purpose of this article is to convince you that any business – large or small – will benefit from management accounting.


What is management accounting?


Management accounting is a distinct type of accounting from financial accounting or bookkeeping. It’s closely related, but it’s more concerned with providing financial information that helps managerial decisions.

This means that management accounting goes beyond the day-to-day tallying of finances, and focuses more on forecasting and longer term business decisions.

Another key role of management accounting is to help managers decide on the prices of products, by providing all the information regarding costs, market factors, and profitability. Similarly, management accountants can help determine the lifecycle of current products and the viability of new products too.

Essentially, management accountants provide key insights that help a company’s management team make many of their decisions. They also support decision making within a company by providing a wealth of financial and statistical information, often assisted by powerful accounting software.


Why is management accounting important?


If it’s not already clear, management accounting can be a valuable tool for your business. The reason that it’s important is that it helps you as a business owner make the right call on crucial decisions such as:

1. Reviewing products

If you’re reviewing your current product range, management accountancy will provide you with all the financial and business-crucial statistics to help you decide exactly which products are profitable, which aren’t, and how to remedy that. Furthermore, it can provide you with valuable metrics for understanding how decisions you make have affected an individual product’s profitability.

READ: Pricing psychology tips that work

2. Launching new products

If you’re looking to launch new products, management accounting is even more important. It can support at every stage, from initial planning right through to execution, by giving a detailed breakdown of production capabilities, as well as an accurate picture of the market as a whole. This is crucial for working out how much you’ll charge for a new product, the quantities of product you will make and whether or not it is worth bringing in extra staff to help deliver.

3. Staffing

Staffing is another area in which management accounting can be hugely valuable. Decisions around hiring new staff and setting wages can be a real headache. Management accountants can help you make the right decision by letting you know exactly how much you can afford to spend on staffing, and the returns you can expect for your investment in personnel.

READ: Calculating the cost of hiring the wrong person

Management accounting will be critical in decisions concerning what you keep in-house, and what you outsource. Getting the balance right between the two is very important, and having the data to inform decisions is a great way to help navigate these tricky choices.


How do I get all these benefits of management accounting?


There a number of ways to introduce or expand the role of management accounting at your business. Which you choose will depend on your current capabilities, and how much you’re able to invest.

Hire a management accountant

Perhaps the most obvious option is to bring in some new talent who specialise in management accounting. This will obviously be a fairly costly option, although this way you are building these skills into your workforce, meaning that you will always have both the data and their expertise on hand.

Train up current staff

Perhaps you already have staff who are showing the kind of potential that you think would make them a good accountant. If they have strong quantitative skills, and a good understanding of the way your business works with first-hand experience of how managers make decisions, they are well on their way.

A list of the best CPA review courses is a good starting point to understand the training options available and the cost to your business should you wish to develop a management accountant in-house.

Bring in a third party

For smaller businesses lacking the resources or workforce to bring in or train up staff, there is always the option of using third-party firms to provide management accountancy muscle without needing to hire.

Whichever option you choose, I hope that this article has convinced you of the importance of management accountancy for businesses big and small.

Ultimately, it is a case of finding support and advice to help you get those crucial management decisions right first time.

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