What is management accounting?

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

Another key role of management 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 lifecycle
of current products and the viability of new products too.

Essentially, management 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 management accounting important?

If it’s not already clear, management accounting can be a valuable tool for your
business. The reason that it’s important is that it helps you as a business owner
make the right call on crucial decisions such as:

1. Reviewing products
If you’re reviewing your current product range, management 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.
Furthermore, it can provide you with valuable metrics for understanding how
decisions you make have affected an individual product’s profitability.

READ: Pricing psychology tips that work

2. Launching new products

If you’re looking to launch new products, management accounting is even more
important. It can support at every stage, from initial planning 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. Staffing
Staffing is another area in which management accounting can be hugely valuable.
Decisions around hiring new staff and setting wages can be a real headache.
Management 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.