Strategic management accounting

What is strategic management accounting?

Strategic management accounting supports sound business decision-making by providing ongoing data and analysis of management accounts.

The role of the management accountant is as a trusted adviser, supporting the leadership and the whole company, drawing on expert knowledge and insight.

 

How Do Strategic Management Accountants Work?

 

Strategic management accounting is a process that involves several steps:

  • Setting goals and objectives
  • Gathering and analysing information
  • Formulating strategy
  • Implementing strategy
  • Monitoring and evaluating.

To set objectives, the management accountant needs to gain a clear understanding of the company’s overriding vision and mission.

This strategic approach should always align practical tasks with this central vision and mission.

Therefore, a key part of the process is gathering information from the business’s leadership team. Once the management accountant has this information, they can then set about translating it into objectives.

This, and subsequent processes must involve a close dialogue between the leadership team and the management accountant.

The strategic management accountant bases objectives on data. Gathering this data from various sources will provide the necessary information to form the basis of clear planning.

What is vital here is the interpretation of data, not just the gathering of it.

Professional analysis and scrutiny should provide the detail that will support strategic decision-making.

After careful analysis of data, the management accountant can help the company put together its strategic plan. Within this planning stage, there will be room for review and refinement.

Next, the company implements the strategy that the accountant’s data and analysis have helped to shape.

There will then be regular monitoring and evaluation of performance, to check that what the business is doing aligns with the agreed objectives.

This whole process is circular rather than linear. The information that the accountancy team gathers as part of its monitoring and evaluation should feedback into the ongoing strategy of the company.

There is a continuous cycle of learning and application. This may take place throughout an entire organisation, or it may be focused on certain departments.

This reflects the individual nature of strategic management accounting. It is bespoke to the specific business it is serving.

 

What Type of Decisions Does Management Accounting Support?

 

Management accounting’s strategic decisions tend to focus on these major areas of business activity:

  • Pricing
  • Business development
  • Market development
  • Product development
  • Mergers and acquisitions

However, this isn’t a prescriptive list. To a large extent, the boundaries of strategic marketing accounting are defined by the needs of each particular business it serves.

For example, in pricing issues, management accounting may focus on gross margin percentages.

How might a company adjust these to improve its performance and increase market share?

 

What Do Management Accounts Include?

 

The actual accounts that management accountants produce cover:

  • Profit and loss
  • Cash flow
  • Balance sheets
  • KPIs

Once they have this information in front of them, management accountants will examine and analyse it and put it into different contexts, depending on the needs of different leadership and management teams.

Strategic management accounting keeps a keen eye on figures but also identifies trends and patterns.

Companies, with the support of their accounting team, can incorporate this information into their future planning.

 

What Activities Do Strategic Management Accountants Carry Out?

 

Management accountants use various techniques to support their clients’ business strategies.

These include:

  • Costing
  • Benchmarking
  • Budgeting
  • Monitoring competitive positioning
  • Analysing customer profitability

Costing can be carried out based on company activities, product lifecycles and quality, targets and value chains. Management accountants can also look at areas of consumption, the cost of resources, and final output.

By benchmarking, management accountants can identify areas where the company is performing or underperforming.

Budgeting involves brand value budgeting and capital budgeting. Brand value budgeting assigns financial value to the equity that the company’s name or image creates. It assesses the net value of estimated future cash flow connected to the brand. Capital budgeting focuses on long-term capital investments.

It’s also important for the company to understand where it sits in relation to its competitors. Strategic management accounting reviews performance in the context of the company’s market position and the position of its commercial rivals.

Strategically, looking at revenue streams and service costs related to customers and different customer groups is critical for planning purposes.

 

What are the Benefits of Strategic Management Accounting?

 

With the full support of an experienced strategic management accountant, a business can gain both clarity and perspective. It has ready access to the knowledge and insight necessary to make sound strategic decisions.

Strategic management accounting is different from financial accounting. It places much more emphasis on the accountant’s role as a business adviser.

This role offers added value to enterprises and organisations, going beyond compliance and review to look at the future. It supports this with careful analysis of current business performance.

As the name suggests, this form of accounting supports business management, providing the data and forecasting information that leadership teams need to drive their businesses forward.

This makes strategic management accounting an asset in its own right.

For more details about our specialist management accounting services, please contact us on 020 8088 2590, email enquiries@vennaccounts.com or fill in our contact form and we’ll be back in touch asap.