What are management accounts and do you need a makeover?

What are management accounts

What are management accounts and why are they vitally important for every business?

Management accounts, ideally produced monthly, are the reports that tell you how your business is performing.

Typically they include:

  • P&L for last month and for the year to date, compared with budget and with last year
  • Month by month P&L for the last 12 months
  • Balance sheet
  • Aged debtors and aged creditors

These are basic reports that will fall out of your accounting software, such as QuickBooks or Xero.

What are management accounts going to tell me?

The first two reports are telling you if you’re making a profit or a loss. They offer comparisons with last year and against your budget if have one.

Looking month by month tells you about growth and seasonality.

They both tell you if you’re missing something.

The balance sheet speaks to financial strength. It’s a list of assets and liabilities and you need your assets (e.g. cash, debtors, stock) to be larger than your liabilities (e.g. creditors, loans, taxes) to be a solvent business.

Aged debtors is a list of who owes you money and since when – vital for credit control

Aged creditors is a list of who you owe money to and how old these liabilities are.

Not having management accounts is simply not an option and yet we continue to see companies, some with multi-million turnovers, that have nothing like the management information they need to run their businesses.

Sounds familiar?

Organise a management accounts makeover.

Management accounts makeover

Your MONTHLY management accounts should include as a bare minimum:

  • P&L for last month and for the year to date, compared with budget and with last year
  • Month by month P&L for the last 12 months
  • Balance sheet
  • Aged debtors and aged creditors

Plus any further analysis, such as profit by client, profit by service / product that is relevant to your business.

And, if you are concerned about cashflow – you need to be reviewing a cashflow model!

Your management accounts need to be correct to be useful

If you have the wrong information you will make the wrong decisions and probably think you are richer than you really are.

So make sure your bookkeeping is complete and accurate.

Some numbers in the management accounts are estimates, that is inevitable, but they should be accurate estimates.

Other numbers, such as your bank balances, can be exact because they can be agreed to your bank statements.

If you have stock – count it and value it at least every quarter.

And make sure you are recognising the cost of depreciation of fixed assets each month and, assuming you are making a profit, make a provision for the tax you will have to pay.

Get your management accounts out quickly

Aim for no more than five working days as a deadline. Information is better fresh and waiting a month to know what happened last month is pretty pointless.

Setting a five day deadline will throw up issues in your business about people and processes. Both need to be fit for purpose.

The aim with management accounts is to make their production a routine, quick process and then to use them, along with other data, to monitor and improve business performance.

If it feels like pushing a very heavy boulder up a very steep hill – ask for help. It’s a false economy not to.

Michael – @bluedotmichael

Related links:

Management information – Important as it is, no one does bookkeeping for the sake of bookkeeping

Management accounts – five steps to useful numbers

Profit improvement – make profit your first cost

Blue Dot Consulting Limited