Hey manager! Are you looking for tips on how you can improve your business decision making? Then keep watching this video to find out more.
If you're a business owner or project manager, the #1 skillset you need to develop is the ability to make intelligent data-driven business decisions. And because we're talking about contracting businesses, the key to building a successful business is understanding your costs. In particular, you need to be collecting data about your overhead. Your job costs. And ultimately these two, feed into calculating your markup and margin.
And if you don't know what the difference between markup and margin is, check out last week's video, where I give an example of the difference by using a cake. Typically, the tools that we use to make business decisions are Financial Accounts and Managerial Accounts. Though they both have the word accounts in them,
they actually are different things, like markup and margin. And today I'm going to share with you the difference between the two.
When we look at Financial Accounting versus Management Accounting and taking into consideration the users of these accounts, what you'll find is that Financial Accounting is primarily used by external parties, like the tax department or even banks. Managerial Accounts are used by internal people, like your employees, the business owner, and so forth. From a format perspective, Financial Accounting is regulated,
so think about IFRS and GAAP. From Management Accounting perspective, there is no format. Your format is only limited by your imagination. From a frequency perspective, "How often should I be doing these accounts?" You should be doing your Financial Accounting at least annually. Whereas, Management Accounting is done often, and I recommend weekly.
And if you set up your systems right, you could literally spend 20 minutes a week on your Managerial Accounts. It doesn't take that much time. From a content perspective, Financial Accounting is backward-looking and Managerial Accounting is forward-looking. Taking all this into consideration, examples of the two include: you have your financial statements, for Financial Accounting, which includes your Profit & Loss Statement, as well as your Balance Sheet. From a Managerial Accounting perspective,
these are estimates or even budgets, because they are forward-looking. Finally, the tools that help you implement Financial Accounting and Managerial Acounting are, for example QuickBooks and Sage. And a very common tool for Managerial Accounting is Excel and Level.
By understanding the difference between Managerial Accounting and Financial Accounting, you'll be able to set yourself up for success, because what your Managerial Accounts should be doing is collecting the data you need to make intelligent decisions.
Keep following me on the series, as I explore the different terms within Managerial Accounting. Ultimately, leading up to how you use your Managerial Accounts to calculate the markup or margin unique to your business. I hope you enjoyed the episode today and catch you next week. Cheers!