Keeping a close eye on the financial health of your small company is essential when it comes to ensuring profitability and growth. Many small business owners do not have the in-depth accounting knowledge required to track business finances, so they have these services performed by a hired professional instead.
While you may think that your financial accountant can sufficiently advise you when it comes to making decisions involving money, advising tasks are best left to those with experience in management accounting. Here are three reasons why your small business should invest in management accounting services in addition to your financial accounting services.
1. Management accounting focuses on the future.
The major difference between financial accounting and management accounting lies in the perspective of each respective field. Financial accounting focuses on the past and reconciling existing income and expenditures. Management accounting focuses more on how current financial standing can influence the future.
When you are trying to make investment or purchasing decisions, having someone specializing in management accounting to advise you will ensure that you are able to thoroughly evaluate how a single decision could impact your company's future.
2. Management accounting helps identify proportional cost changes.
While your financial accountant may be able to tell you how business decisions impact direct costs, only someone with management accounting experience will be able to identify proportional cost differences resulting from changes to indirect costs.
A simple example of this lies in the automation of the production process. While automated production may appear to make sense because your financial accountant shows it will reduce labor costs, a management accountant will be able to determine if the proportional change in direct labor costs outweighs the indirect cost of equipment depreciation.
The ability to identify covert proportional cost changes allows a management accountant to help you make sound and well-informed business decisions.
3. Management accounting identifies low-risk investment opportunities.
In order to grow your small business, you will need to make sound investments. The ability to accurately forecast profitability and life-cycle costs for a given product or service is something that management accountants, like Dale K. Cline, CPA PLLC, specialize in.
Your financial accountant will not be able to utilize market conditions and trends to make accurate predictions regarding the success of a new product or service, but your management accountant will be able to generate detailed reports identifying investment opportunities that will help your small business expand into new markets with minimal risk.
Hiring a management accountant to advise you when it comes to making decision for your small business will ensure that you are armed the with accurate and well-researched information needed to manage your financial resources to encourage future growth.
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