Tag: realistic cashflow model

Monthly management accounts – five steps to useful numbers

none of these steps will be very effective if you don’t have the people or the accounting software in your business to produce the information you need when you need it, so make sure that you have these basics right and seek help if you don’t.

Monthly management accounts are essential for every business.

Quite simply, you need to know how you are performing and you need to know what to change or do more of in order to perform better.

Why monthly management accounts are a good idea

Management accounts, ideally produced monthly, tell you how your company is performing. For the month, the financial year to date, against budget, against last year.

Armed with this information and, ideally, other non-financial information, a management team can get the business to perform better by doing more of what works and less of what doesn’t. Things like:

  • controlling costs
  • improving margins
  • boosting cashflow
  • reducing risk through better credit management

Sounds useful? Here are five steps to help you get useful numbers that will make a difference.

1. Monthly management accounts & five-day deadline

Produce your management accounts, using a format that everyone understands, within five working days of the month end.

They should contain no surprises (do you really not know how your business is performing throughout the month?) and your top team need to discuss the numbers, absorb the messages and take action.

2. Profit & Loss information

You need profit & loss information for the month, year-to-date and compared against your budget and against last year.

Variances from budget and last year need to be understood and explained.

You also need information on gross profit margins, ideally by customer and by product / service.

Finally, there is a risk of being too focused on the present. Try to include some longer-term analyses such as moving average and last twelve months performance data. These smooth the peaks and troughs and give you a good sense of the trends in performance.

3. Cashflow and debtors

A profitable business can still go bust if it hasn’t got the cash to pay the bills.

Also, it’s a huge pain to run a business with a poor cashflow when it always feels as if you haven’t got enough money in the bank.

So include cashflow and debtor information in your management accounts pack and hold people’s feet to the fire to make them accountable for this part of your business performance (not just financial people – sales people have a big part to play in credit management!).
 

4. A picture paints a thousand words

An MD of a client of ours simply does not understand pages of numbers and he’s not alone. Therefore, include graphs and charts to tell the story in a different way.

Graphs often make a point more strikingly than numbers and are particularly useful for portraying a longer-term story and showing the forward-looking trends.

 5. Calls to action

There simply is no point in producing management accounts that are not acted upon, so include calls to action and make sure that at the meeting where performance is discussed there is an agenda item that follows up on last month so you know action really is being taken.

Finally, none of these steps will be very effective if you don’t have the people or the accounting software in your business to produce the information you need when you need it, so make sure that you have these basics right and seek help if you don’t.

Can we help your business with management accounts?

We help all of our business clients with management accounts and we do a lot of work in Finance Transformation.

Can we help you?

Often, we find that a business is using a cloud-based accounting service, which would be fine for producing management accounts, if only they knew how to use the software better.

We also find businesses that are drowning in spreadsheets, sometimes because that’s how they have evolved and sometimes because they haven’t got to grips with their accounting software.

See if either of these blogs sounds familiar:

So, if you think we can help you, let’s have a free-of-charge chat about your business.

Call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk

Michael – @bluedotmichael

Related links:

Management information

Proof of profit

What are management accounts and do you need a makeover?

Blue Dot Consulting Limited

Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW

A gory cashflow model is a useful cashflow model – the bloodier the better

You probably can’t rely on your bank to save the day so it’s down to you

At a monthly review with an MD recently we were working on managing cashflow and thinking perhaps the company accountant was being too optimistic.

Essentially, things could be worse!

And if they were going to turn out worse than expected then what did that mean for the business and what could be done to manage the situation?

Managing cashflow – who needs to?

Businesses tend to fall into two categories:

  1. Those that need cashflow models
  2. Those that don’t (usually because they’re well funded and cash just isn’t a problem)

If you’re in category 1 (most businesses!) then you need your cashflow model to be realistic otherwise it simply isn’t useful for you.

The bloodier and gorier it is, with all the realistically possible crunch points included, the better.

Why?

Because it forces you to deal with the problems and will help you to navigate turbulent times successfully.

What does a cashflow model look like?

Essentially it’s your bank statement looking backwards and forwards.

Month by month you summarise receipts and payments and the difference between the two is the net cash flow for the month.

Add the net cash flow for the month to the balance brought forward at the end of last month and you have the balance carried forward to next month.

When you create your cashflow model – go backwards for six months before you start to forecast the next six and your model will be much more realistic.

Keep on adding in the actual cash flows for each month as you move forward so you are always building your forecast on top of what actually happened.

Example of a cashflow model

Business decisions drive cashflow

You probably can’t rely on your bank to save the day so it’s down to you, your team and your business to:

Running a business is certainly not easy but if a realistic cashflow model should be front and centre and isn’t then get on top of cashflow before cashflow gets on top of you.

Michael

Related links:

Cashflow

Get paid quicker – 5 tips to improve your sales invoices

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