At some stage most business owners will be persuaded by their accountants that they should look at management accounts on a regular basis; the format and content of these is often left completely at the accountant’s discretion. 

Traditionally, accountants have produced management accounts for clients which are remarkably similar to those filed at the year end.  This is what they understand and what they are used to working with, and by and large it’s what the accounts system will easily produce. 

But does it really help you to make decisions about what actions you need to take?

I will give you my definition of what a set of management accounts should be:

“Management accounts should provide financial and non-financial information, both historic and forecast, which is sufficient for managers to make educated decisions about the running of the business.”

You should determine what information you need, and as noted above it is unlikely to be just financial – one of the key bits of information might be the number of new clients, or the number of client visits per engineer.  It is, however, sensible to talk to your accountant about what you want, as the ideal information might not be available, or be economic to produce.

The ideal information will depend to a very large extent on your strategy and the current state of the business; to give two contrasting examples:

1.       A new business in the development phase will be keenly aware of the cash consumption and the amount of time before it has to raise further funds, and therefore most of the management information will revolve around cash consumption and time to completion of the project.

2.       A mature well-funded and profitable business should be interested in which clients / offices / products have generated the most profit, and is going to be less interested in cash issues

Funnily enough, the standard reports from Sage wouldn’t suit either of the circumstances above.

 

I shall close with a specific example. 

Some years ago I helped a mail order business which was looking to grow. They had asked their external accountants to prepare management accounts for them, and the document the management group waded through each month comprised about 20 pages of detailed numbers out of the accounting system, with little analysis and precious few words. 

And they did wade through it all, as the founder of the business was nothing if not diligent and he was paying for his accountants to produce it, so it had better get used!

In order to give them what we thought was useful information, we started to produce a monthly schedule of the top 10 and bottom 10 products by sales value and by margin; this was produced in addition to the standard lengthy document, and quickly became the schedule which was the centre of attention at the management meetings; for some reason the fact that postage had gone up by 10% over the previous month stopped commanding so much attention!

We didn’t stop there – but I’m sure you get the drift.

Management information should help the managers decide what to do to make a difference to the business!