Management accounting is important for all businesses.


30th January, 2021

What is managerial accounting? Here’s a 5-minute explainer

You may think that managerial 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 managerial accounting.

What is managerial accounting?

Managerial accounting is a type of accounting distinct 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 managerial accounting goes beyond the day-to-day tallying of finances, and focuses more on forecasting and longer term business decisions.

Another key role of managerial 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 life cycle of current products and the viability of new products too.

Essentially, managerial 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 managerial accounting important for your business?

Managerial accounting can be a valuable tool for your business. It helps you as a business owner make the right call on crucial decisions such as:

1. Deciding on which products are profitable

If you’re reviewing your current product range, managerial 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.

It can also provide you with valuable metrics for understanding how decisions you make affect an individual product’s profitability.

READ: Pricing psychology tips that work

2. Planning new products for launch

If you’re planning to launch new products, managerial accounting is even more important. It can support at every stage, from initial validation 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. Helping you understand staffing requirements

Staffing is another area in which managerial accounting can be hugely valuable. Decisions around hiring new staff and setting wages can be a real headache.

Managerial 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

Managerial 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 the benefits of managerial accounting?

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

1. Hire a managerial accountant

Perhaps the most obvious option is to bring in some new talent that specialises in managerial accounting. This can be a fairly costly option, although it’s a good way to build these skills into your workforce, so that you will always have both the data and their expertise on hand.

2. Train current staff

Perhaps you already have staff who demonstrate skills 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.

3. Bring in a third party

For smaller businesses lacking the resources or workforce to bring in or train up staff, there’s the option to use 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 crucial management decisions right – the first time.