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Use these three items in your management accounts as internal controls

by , 20 May 2013
Management accounts should be the basis for all decision-making as they help you keep your business finances on track. Here are three items you can use in your monthly management accounts as internal controls to ensure your business never slips into the red.

An ineffective control environment will bring your business to its knees! That's why it's important your company takes steps to implement effective internal controls.

Keep an eye on the following three items in your management accounts to ensure your business doesn't go bankrupt because you don't have sufficient internal controls:

Use these three management account items as internal controls

  1. Gross profit. Use the gross profit percentage as a check to highlight potential problems in sales and manufacturing costs. 'Your business should have a consistent mark-up policy, which means that you'll always know what the gross profit percentage should be,' says the Practical Accountancy Loose Leaf. Your gross profit shows you how much profit comes from sales to fund your other selling, general and administrative business expenses.
  2. Selling, general and administrative expenses. Compare these costs with your budget. Focus on reducing these costs as far as possible.
  3. Net profit after tax. If your net profit after tax decreases, this could signal problems to come. 'Net profit after tax is the money you can put in the bank, or reinvest in your company, without worrying about any more deductions,' says the Loose Leaf. So, if this figure decreases, your real profits are decreasing.

Use these internal control measures in your management accounts to monitor your business's activities and ensure your company's finances are always in order.



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