How to prepare your management accounts
‘Information is Power’ – has been quoted by many famous leaders, and as a business owner having the right information at the right time can be the key to success. Being well-informed and knowledgeable helps with decision making and can keeps you heading in the right direction.
Management accounts (sometimes called Management Information (MI) are reports used by business owners and management for strategic decision making. Often produced on a monthly or quarterly basis, and provide insight into the current financial health of a business by highlighting various key performance indicators.
They are an essential collection of key business information – the analysis of these reports will enable management to make decisions on what to stop, what to do more of, show where the opportunities are or how to mitigate risks.
What to include in management reports
Management Accounts isn’t a single document but a suite of business information delivered at different times and from a variety of sources. There are two types of information – ‘flash’ reports which provide an instant view on a specific view of the business, the other are monthly / quarterly reports which require verification and analysis. Both formats of this management information are incredibly useful and should be embedded into your business processes.
· Examples of fast (“flash”) reports couple be
o Daily transactions and average order values
o Weekly sales pipeline
o Cash update
· Examples of content for monthly Management Information
o Revenue analysis
o Project analysis
o Stock analysis
o Prediction of quarterly or annual results
As your business grows, so should the amount of and types of information you include in your management accounts. Make sure you review the criteria on a regular basis, this will help ensure that your accounts information is relevant and helpful for your business right now.
How to present and analyse your management accounts
By monitoring these aspects of your business, you really start to gain a deep understanding of it’s strengths and weaknesses. Having a solid set of management accounts will empower your decision making and help ensure the decisions you make are the right ones.
Management accounts should be reviewed monthly by the management team and the board – at the same time, in a meeting. This will give people the opportunity identify and agree and act on any areas for concern.
Presenting the management accounts in the correct way is an important part of the process - it's helpful if one person is responsible for collating and formatting the information in a way that everyone in the team will recognise and understand.
A few common pitfalls when creating and presenting management accounts can include:
o Long lists of transactions that have no context
o Statutory accounts prepared every quarter
o No analysis or commentary
o Accounts that don’t add up
o Accounts that are too late for management to take action
When done right, the analysis of management accounts can expose many areas that require change in your business. Here’s a few examples of the sorts of things your management accounts review might highlight and what to do:
o We use lots of contractors to do X, perhaps we should hire
o Average order value is going down, we need a sales push
o We’re reaching capacity in Y team, we should hire
o Divisional or business unit analysis. Mixing everything in together doesn’t help
At PCFO, we help ambitious businesses grow by acting on opportunities and mitigating risk. We support and advise on building and presenting helpful management accounts which will enable businesses to make the right decisions, at the right time. Find out more about how we can help your business to succeed by speaking to our team.