What makes a good set of management accounts?
Overriding principal -
management accounts should provide managers with sufficient information, both financial and non- financial, historic and forecast, to make educated decisions about the running of the business. If you are preparing such information, this principal should guide you; if, on the other hand, you are the recipient of management information, don't be afraid to ask for what you need!!
The objectives of management information (MI) -
must be clear from the outset. They will depend on the business strategy, the current challenges and also the audience to which the MI is addressed (eg internal / external) - consider having a full pack for internal consumption and an abbreviated version for external stakeholders.
Key issues which are likely to be vital to most small businesses include:
where profit is being generated (by client, by branch or by product),
where cash is being generated or consumed – interestingly, just because a product is profitable does not always mean that is generating cash, at least in the short term,
identifying costs which are genuinely dependent on sales levels – all too often cost of sales (variable) and overheads (pretty much fixed) are confused.
Content -
is unlikely to be exclusively financial, as non-financial information (such as numbers of new clients, product volumes, percentage of chargeable time, etc) can be equally important and much more informative,
should ideally be compared with budget, or in its absence with comparatives for previous periods (year, quarter or month dependent on the age of the organisation); without these comparatives, important factors or trends may be missed,
should incorporate a forecast for subsequent periods (rest of the year or six months at minimum) if only to support cash flow predictions; but forecasts will help focus discussion on the decisions necessary to effect change.
When?
as soon as is practical!
Full detailed MI may, however, take a couple of weeks to prepare – particularly if you are including forecasts and non-financial information. In this instance consider reviewing “Flash” reports - key information such as sales and margin by customer, product or location - early in the month, and the full pack when it becomes available.
Words and pictures as well as numbers?
not every business owner or manager readily understands the numbers, so you should write a brief commentary about the accounts which should:
summarise the main issues,
detail main variations from the budget or previous periods,
outline possible action to redress adverse variances.
and may even include the odd graph!
