Managerial accounting revolves around three primary components:

1. Planning
2. Controlling
3. Decision making

All companies have requirements around these components from the very beginning. Budgeting and business planning are the very first steps in beginning a business, and these are managerial accounting tasks!  But what would happen if you just jumped into a business, without planning anything?

Let’s look at a small business start-up:

You can download a transcript for the video “MA Module 1, Video 6, Planning Directing and Controlling, Problem 1-3” here.

The first step is planning. Let’s assume we are going to start that restaurant Tony talked about in the video.  First, we will create a budget for our new venture. This budget provides us with milestones.

• How much in sales do we need to bring in each month?
• What will our menu look like?
• How many employees do we need and how much will we pay them?
• What will our cost of product be?
• What will we pay for rent and utilities?

Once we have the plan, and we operate our business for a while, we can then move on to the control portion of the managerial accounting process.

• Did we meet our sales goals?
• Did we stay within our budget for payroll?
• Did we meet our cost of product budget and goals?

Then we get to move on to decision making.

• We didn’t make our sales goals, so how will we adjust costs?
• Should we adjust costs, or should we rethink our marketing plan to increase sales?
• Are we pricing our product correctly?
• Are we reaching our customer base effectively?
• Do we need to change our menu to better meet customer needs?
• If we didn’t meet payroll budget, are we providing the correct training and direction for our employees to do their jobs effectively?

So, hopefully this gives you a better understanding of the importance of planning, controlling and deciding! If you never did the budget, or review it, how would you be able to make decisions that will create a profitable business?

You can download a transcript for the video “3. Managerial Accounting Ch1 Pt 2: Functions of Managers – Role of Management Accountants” here.