How Does Accounting Help Managers to Make Decisions?

If you’re new to the world of business, and are finding yourself scratching your head each time you have to make an important decision, ask yourself – what is currently informing your decisions? Gut instinct? Educated guesses? A coin toss? It might be time for you to think about hiring an accountant to help you make those big decisions, but this time, in an informed manner. 

So, how does accounting help managers to make decisions? Accounting helps managers to make data-driven, informed decisions in areas such as analysis, targeting, budgeting, planning, trend, and market analysis, and make or buy analysis. It also ensures best practices and regulatory compliances across the board. 

Read on to learn more about how accounting can help managers to make better decisions.

Jump To:

• Why is Accounting Important in Decision Making?
• What is the Role of Management Accounting in Decision Making?
• What is the Most Important Role of Management Accounting?
• 5 Ways Accounting Helps Managers to Make Decisions
• Business Forecasting Accountants In Essex

Why is Accounting Important in Decision Making?

Accounting is incredibly important for making good, informed decisions that are less likely to come back to bite you a few months down the road. Not only does it allow managers to accurately keep on top of their financial landscape, but it allows for analysis and effective planning.

Accounting information is also important for managers to have to hand when trying to justify decisions to senior management and investors, or when looking for finance. This information will help to prove their point, adding a layer of trust and reliability.

What’s more, having an accountant overseeing company finances and assisting in decision making will ensure that the company is fully compliant with regulations and UK laws. It can be easy to break compliance, either by not knowing what is and isn’t legal or by being tempted for one reason or another. An accountant will ensure that managers’ decisions are fully above board. 

It may take longer and might sound boring, but by consulting accounting information before making big decisions, managers are lessening the risks associated with the decision at hand. 

What is the Role of Management Accounting in Decision Making?

Many managers don’t realise it, but management accounting guides the overall business strategy, helping decision makers within a company to make key decisions by simplifying complex financial data, turning it into insights that can be used to inform the decision making process. 

The key functions of management accounting include:

• Planning
• Organising
• Collecting business elements
• Forecasting 
• Budgeting
• Business performance

What is the Most Important Role of Management Accounting?

The most important role of management accounting is to conduct a cost analysis that determines the existing expenses and provides managers with insights for forecasting, long-term business planning, and for making important decisions.

A cost-benefit analysis involves various financial metrics, such as revenue earned, or costs saved, as a result of the decision to pursue a particular decision. It can also include intangible benefits and cost effects from a decision, such as customer or employee satisfaction.

5 Ways Accounting Helps Managers to Make Decisions

Below we have outlined 5 key ways that accounting, specifically management accounting, can help managers to make better, more informed decisions.

Cost Benefit Analysis

We’ve already mentioned the importance of cost-benefit analysis – it is one of the most important accounting activities for decision making, helping managers to understand the potential outcome of pursuing various decisions with financial metrics. 

Targeting

Managers should analyse the value of each customer segment to detect lucrative opportunities, and where money may be being lost. This helps managers to know where to best invest time, money, and resources in the future in order to bring in value long-term.

Budgeting

Budget-related decisions must comply with company-wide goals and structures, as well as sales history. Accountants can step in to analyse previous activities to identify opportunities for the future, create financial plans for each department, as well as to detect any potential threats.

Trend Analysis

Reviewing trends is an important way that accountants can help managers to make decisions. Decisions can be made by using previous information, identified by accountants, such as:

• Historical pricing 
• Sales volumes
• Geographical location 
• Customer trends 
• Financial data 

Planning

All of the above, and more, contribute to the ability to make long-term decisions, and plans for the future. It also allows managers to stay up to date with industry trends, meaning that they can react to market changes quickly, and implement informed strategies that are data-driven, not just blind, panicked reactions. 

Business Forecasting Accountants In Essex

ARB Accountants are chartered accountants in Essex, with a team of business forecasting experts that can help you make better decisions and plans for your business. Get in touch with us today to learn more about how we can help.