Management Account vs Account Management: What's the Difference?

In the daily workings of a business, keeping a close eye on the finances and building solid connections with customers are both really important. 

You’ll likely come across the terms management account and account management respectively, and while they sound alike and seem like they can be used interchangeably, they actually mean different things!

Both are equally important to how a business operates and let’s be honest here, it’s very easy to get them mixed up. 

So let’s clearly explain what each one does and why knowing the difference is key to your business success.

What is Management Account?

Management account, sometimes called managerial accounting, is fundamentally about looking at what’s happening within the business itself, so an internal report of sorts. 

It’s the job of putting together financial information and reports specifically for the people running the company such as the managers and internal teams. The goal? To give them the understanding they need to make good calls, plan what’s coming next, and keep things on track.

Consider a management account as the internal know-how system for a business. It looks closely at things like costs, income, and how efficiently things are running to answer questions such as:

• What does it really cost us to make our products or deliver our services?
• Which of our products or departments bring in the most profit?
• How are we doing compared to what we expected in our budget?
• What will happen financially if we decide to go in a new direction?

A management account sample report might show detailed breakdowns of expenses, comparisons of budgets to actual figures, analyses of how well different parts of the business are performing, and predictions for the future, all designed for use inside the company to help with decisions.

Key Components of Management Account:

Cost Accounting: This involves figuring out the total expenses related to producing goods or delivering services. It looks at direct costs (like materials and labour) and indirect costs (overheads). Techniques such as standard costing (setting expected costs) and activity-based costing (allocating costs based on activities) are part of this.

• Budgeting: This is the process of creating financial planning for a future period. Budgets act as targets against which actual performance can be measured. Different types of budgets exist, such as sales budgets, production budgets, and cash flow budgets.
• Variance Analysis: This involves comparing the actual financial results with the budgeted figures. Any differences (variances) are analysed to understand why they occurred, allowing for corrective actions if needed.
• Performance Reporting: Regularly creating reports that summarise key financial and sometimes non-financial information for different levels of management within the organisation. These reports help track progress and identify areas needing attention or improvement.
• Investment Appraisal: The methods used to evaluate the financial sense of long-term investment projects, like buying new equipment or entering new markets. Common techniques include Net Present Value (NPV) and Internal Rate of Return (IRR).
• Management Accounting Information Systems: The software and processes used to collect, process, and report management accounting data. These systems are important for providing timely and accurate information.

What is Account Management?

Account management, on the other hand, is all about external factors, one that does not touch the day-to-day business operations or expenses.

More specifically, it’s about the relationships a business has with its important customers. People in account management are appropriately named account managers, and they are responsible for looking after these relationships, understanding what the clients need, making sure they’re happy, and often looking for ways to grow the business through these connections.

In the simplest form, they are responsible for maintaining rapport and building relationships with clients. It involves:

• Being the main point of contact for key customers.
• Getting to grips with what their business goals and challenges are.
• Making sure their needs are met and that things go smoothly for them.
• Finding opportunities to offer them more value or services.
• Developing long lasting, beneficial partnerships.

AM as they are typically abbreviated, focuses on talking to clients, sorting out any issues, and building loyalty. How well they do their job is often measured by how long clients stay with the business, how satisfied they are, and how much the business earns from those clients.

Key Components of Account Management:

• Client Relationship Building: Establishing and nurturing strong, positive relationships with key clients. This involves regular communication, understanding their business, and building trust.
• Needs Assessment: Actively working to understand the client’s current and future needs, challenges, and objectives. This ensures the business can offer relevant solutions and support.
• Service Delivery and Support: Ensuring that the client receives the agreed-upon services or products effectively and providing ongoing support to address any issues or queries.
• Communication Management: Maintaining clear and consistent communication with the client through various channels, keeping them informed and engaged.
• Problem Resolution: Effectively addressing and resolving any problems or complaints raised by the client in a timely and satisfactory manner.
• Account Growth and Development: Identifying opportunities to expand the business with existing clients, such as upselling additional services or products, and ensuring the long-term health and profitability of the account.
• Account Planning: Developing strategic plans for each key account, outlining goals, strategies for growth, and key activities to maintain and develop the relationship.

The Main Differences Visualised

To absolutely make sure the difference between the two is crystal clear, here’s a table outlining the key points:

“While a management account helps a business understand its own financial engine, account management is about looking after the valuable customers who keep that engine running.”

Why Knowing the Difference is Important for Businesses

Semantics asides, understanding the distinct roles of management account and account management is really important for a few reasons:

1. Clear and Distinct Roles

It makes sure that teams and individuals know exactly what they’re responsible for. The finance team, who handle management accounts, will have a different set of skills and a different focus compared to the sales or customer service team involved in account management.

2. Strategic Allocation of Resources

Businesses can use their people and money more effectively when they know what each of these areas needs. A good management accountant will be skilled at analysing figures and creating reports, while a successful account manager will be good at talking to people and building relationships.

3. Working Towards the Same Goals

Both parts play a role in achieving the overall aims of the business, but in different ways. Management accounts provide the financial understanding to help shape the business’s direction, while account management makes sure that customer relationships support that direction and bring in income.

4. Measuring Success

How well each area is doing is measured differently. For management account, it might be how accurate their predictions are or how much they’ve helped save costs. For account management, it might be how many clients they keep or how much more business they get from those clients.

Read more: 13 Questions To Ask Your Accountant For Small Business

How Management Account and Account Management Connect

While management account looks at the inside numbers and account management focuses on outside connections with customers, these two aren’t separate islands. 

In a well-run setup and organisation, they should work together, with information flowing between them to give a better overall picture of how things are going and where business opportunities might lie.

Consider this: management accounting gives you the financial scoresheet for the business, showing which products, services, and even customers bring in the most profit. This information is really useful for the teams looking after accounts. For example:

• Customer Profitability Insights: Knowing which customers are most valuable, thanks to management accounts, lets account managers put their energy into looking after and growing these important connections. On the flip side, understanding the costs of dealing with less profitable customers might lead to talks pricing and service level.
  
• Informing Pricing Strategies: The real costs of providing services or products as seen in management accounting, can inform how account management teams approach pricing. Knowing these costs helps them make deals that work for both the customer and the business’s bottom line.
  
• Qualitative Customer Feedback: Account managers, talking directly with customers, can offer useful insights that might not show up in the financial reports right away. For example, how happy customers are or new things they might need can prompt management accountants to look into specific cost areas.

In return, what happens in account management can feed into how management accounting works:

• Sales Forecasts: What account managers predict for future sales, like potential upgrades, renewals, or new business from current customers, provides important data for sales forecasts, which are a key part of management accounting’s budgeting and planning processes.
  
• Client-Specific Cost Drivers: Account managers might point out specific service needs or customisations for certain customers that affect how much things cost to run. Management accountants need this information to keep accurate track of expenses and analyse them properly.

The businesses that do best are the ones where their internal financial understanding (management account) and how they manage external relationships (account management) work together smoothly, allowing each to inform and improve the other.

Still Confused? Don’t Worry

While the difference might seem small and just mere wordplay, it is actually key to how well any business runs. 

At the end of the day, smooth flow of information and good teamwork between these two areas can help companies and businesses to make better strategic decisions, leading to stronger customer relationships and improved financial results, a win for everyone! 

At Accounting.my, we know how important it is to have a good handle on your finances, and we want to give businesses like yours the tools and know-how to get a clearer picture of how they’re doing financially. 

Whether you’re trying to make your internal reporting more efficient or get a better understanding of your financial management, we’re here to help you on your way to greater financial clarity and business success.