What is Management Accounting?

As you research different types of accounting you may have come across the term “management accounting,” a useful term to know whether you run a small or large business. So, what is management accounting and how is it different from financial accounting? Money Mastery LLC is here with the answer!

While most accounting is prepared for the people outside an organization (think stakeholders, banks, and investors), management accounting is prepared for the people on the inside of an organization – its managers and operators. Management accountants work with business leadership to increase the profit margin (within the confines of the law).

Since financial accounting is required by law and management accounting isn’t, many businesses may overlook the importance of management accounting. However, a proper management accounting system can help your business managers make good financial decisions and maximize your profits. Who doesn’t want that? 

Management accounting can create a business forecast to help your business pivot in an uncertain economy. Management accounting reports can be formatted to meet the needs of your business. An effective management accounting report should include cash flow streams, assets, and company debts. If you have not received a bank loan, a management accounting report can help you secure one.

Management accounting is used for one of three purposes: 

1. Budgeting

   The role of the management accountant is to help business owners budget their business and avoid unnecessary expenses. This includes discovering bottlenecks and unnecessary spending. With financial reports tailored to your business needs, business managers can focus on what they do best-business.

2. Trend Analysis and Forecasting

   To help a business keep a positive cash flow, it’s important for a financial expert to perform a flux analysis, identify business trends, and accurately forecast the costs of doing business each financial quarter (or monthly if preferred).

3. Determine Margin Cost

   The best way to increase your profit margin is to know how much it costs you to deliver your services. Your price may need to change as the cost of materials and resources increase. Management Accountants inform business leaders of these costs so they can make an informed decision. 

Management accountants can work in the office or work remotely. If your budget is tight but you still want a quality accountant, consider hiring a virtual controller. Looking for a management accountant? Contact Money Mastery LLC for more information!