Management accounts give you the financial information you need to manage your business effectively. It's normal practice to circulate a management accounts pack before a board meeting or strategy meeting, so everyone can brief themselves in advance.
A good bookkeeping system makes it easy to produce the management accounts you want. It can also give you access to up-to-date figures such as cash balances at any time, rather than needing to wait for the next monthly or quarterly management accounts.
What are management accounts?
Unlike statutory accounts, there's no legal requirement to produce management accounts. You can decide what information you want to include. You may just want to create a one-page summary of all the key data, with links to more detailed information.
Typically, management accounts include a review of recent profitability - turnover, cost of sales, overheads and profits. The accounts should also include key cash flow information. As well as the latest cash balance, this might include a summary of your debtors, stock levels and any major expenditure.
Management accounts tend to be more useful if they include an analysis of how actual performance compares to budget, and how figures are changing over time. Ideally, your management accounts will also include forward-looking figures, such as updated sales and expenditure forecasts, as part of your budgeting.
Where appropriate, management accounts should include explanations of why figures aren't as expected and what's being done. It's important that the information can be understood by the whole management team or board, including non-financial managers.
Key performance indicators
Good management accounts provide information that helps you make decisions. It can be easy to get bogged down in too much information or unnecessary detail. Instead, you want to focus on key performance indicators (KPIs).
Cash flow and profitability are crucial for almost every business. You may well want to target and track key ratios, such as the gross profit margin or growth in sales. Other KPIs vary, depending on your particular business.
For example, a new business that has yet to reach breakeven might focus on how much cash is being used each month and when further finance will be needed. Or you might find it useful to have more detailed information on how individual products or markets are contributing to overall performance.
You may also want to include other indicators that reflect key success factors for your business, such as number of new customers or measures of customer satisfaction.
