When I passed my entry-level qualifications to train as an accountant, I was offered two jobs:
- A trainee Chartered Accountant with a local firm of accountants in Ashby
- A trainee Management Accountant with Pirelli in Burton.
Both were great jobs, but I based my decision on which I thought would be more exciting. Chartered Accountancy is about audit and compliance work, checking what had happened. Management Accounting is about forecasting the future and contributing to the decision-making of the business to give you the best chance of reaching (or close to it) your predicted destination. To use a driving analogy, the Chartered Accountant checks the rear-view mirror while the Management Accountant looks forward through the windscreen and steers the car. That’s why I chose Management Accountancy.
I made the correct decision as I’ve thoroughly enjoyed my career in larger firms and I sat on the board of directors of a few. Guiding the decision-making and contributing to the success of a business is a great feeling. So, a Management Accountant’s job is to forecast where a business is going and give it the best chance of getting there.
Why is this important? I think there is a perfect storm coming and you need to prepare your business for its arrival. This impending storm has three elements:
- Making Tax Digital (MTD)
Apart from Brexit, MTD and technology can be positives for your business.
I was going to write an article on Brexit but decided against it as no one really knows what is going to happen. I also feel this has been handled so badly by everyone involved, regardless of their politics. It would have been a negative article of no value. But we are where we are and companies need to ensure their business is nimble so that when the time comes they can flex according to the circumstances that prevail.
Making Tax Digital (MTD)
MTD is HMRC’s initiative to abolish tax returns for all businesses, instead giving everyone a digital tax record on the HMRC portal where the business must report its top-level accounts every quarter.
The business must report to HMRC on HMRC-compliant software such as XERO, Quick books, Sage on-line etc. So, businesses will be forced into more real-time accounting. MTD VAT reporting starts for businesses over the VAT threshold April 2019 and April 2020 for all other business. All businesses need to starting planning now for this massive change.
Technology is advancing at quite a pace. We already have cloud-based bookkeeping systems. Mobile apps can scan and code a photo of a receipt taken on your mobile phone and upload it into your bookkeeping system. Businesses already using such technology today will have a competitive edge over the competition.
It’s due to this perfect storm on the horizon that I believe you need an accountant who is more of a business advisor, providing you with real-time information systems that aid decision making. What use are statutory accounts produced nine months after your year end to support your tax return and discharge your legal obligations?
I have heard monthly accounts described as just 12 sets of mini statutory accounts. If this is the case with your business, you are missing an opportunity. Monthly management accounts should be tailored to your business information requirements, providing you with knowledge to enhance your decision making. They should provide valuable Key Performance Indicators (KPIs) that tell you how well your business is performing, and they should be comparable with budgets and revised forecasts to see if you are still on track.
Done properly, management accounts will provide you with valuable real-time information all year to drive your business forward then be easily convertible into statutory reporting, with the advances in technology already available ambitious business owners should be seriously considering cloud based bookkeeping and tailored management accounts to drive their business forward now.
I hope you now understand what a Management Accountant is and why you should consider engaging one.
Burton Mail – Wednesday 17 October 2018.