What should my management accounts look like?
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Management accounts form a financial report used by business owners and management for day-to-day and strategic decision making. They are ... Beyondthebalancesheet PersonalTax(3) Businessinsight(1) TaxNews(1) Hospitality(1) Whatshouldmymanagementaccountslooklike? ErcanDemiralay 28/10/2019 5minuteread ErcanDemiralayFCCAexplainshowmanagementaccountswillchangeasyourbusinessdevelopsandexpands. Regularmanagementaccountsareabsolutelyessentialtoyourbusinessinhelpingyoutomonitorperformance.Butwhatshouldtheycontain?Well,they’renotalegalrequirementsothereisn’tanythingthat’scompulsory,butthey’rebusinessspecificsoyoucansimplyincludetheaspectsthatareofmostinteresttoyouastheowner. Inwritingthispostwe’veincludedtheStagesModel(courtesyofShirlawsbusinesscoaching)tohelpyoudeterminewhereyourorganisationcurrentlyisinthegrowthlifecycle.Thenyoucanbetterdecipherwhattoincludeinyouraccountstohelpgaugeprogressanddrivedecisionmaking. Itmayseemlikeachorehavinganothersetofaccountstofocuson,buttheycanhelpdriveyourbusinessforward.Whetheryou’reinstart-upphaseorscaling,wehavesomesuggestionsforwhatyoumightwanttobereportingonandwhen.Preparingandreviewingtheseonaregularbasiswillallowyoutoreflectonpastdecisionsandlearnformakingfutureones. Whataremanagementaccounts? Managementaccountsformafinancialreportusedbybusinessownersandmanagementforday-to-dayandstrategicdecisionmaking.Theyareproduced,usually,onamonthlyorquarterlybasis,andprovideinsightintothecurrentfinancialhealthofabusinessbytrackingvariouskeyperformanceindicators. Whatshouldbeincludedinmanagementaccounts? Inshortmanagementaccountsneedonlyincludewhataboardormanagementteamneedtosee.Thereportshouldcontainenoughperformanceanalysisandfinancialdatasothatinvestmentdecisionscanbemadeinawellinformedmannerbydecisionmakers. Today’sworldoftechcompaniesandtheinternetoffree(viafreeconomics)haveresultedinalotofcollaborationbetweenentrepreneurs.Whilstthismentalityisunderstandablewiththeaimofbudgetingandkeepingcostsdown,youneedtounderstandthatyourbusinessisunique!Thereforeyouraccountsshouldreflectthisandbetailoredtotheareaswhichneedtoberecordedtoachieveyourgrowthtargets. StartbytakingalookattheStagesModel(aconceptoriginallydevelopedbyShirlaws) belowtohelpyouidentifywhichcriteriayoumaywanttoincludedependingonyourcurrentlifecycleposition.Don’tbeafraidtochangethecriteriayoufocusoninyouraccountsasyourbusinessgrows.What’simportanttoreviewnowmaynotbeneededinsixmonthstime.That’swhat’ssogreataboutthem;they’retailoredtoyourneeds. Whetheryouwanttocreateabudget,analyseyourbusinessinsegments,orsimplyseeasummaryofyouraccounts,it’sentirelyuptoyou.Wehaveafewexamplesbelowofwhatyoumaywanttoincludedependingonwhereyou’recurrentlyat. Ifyou’reinstartupstageorprogressingbuthaven’tyethitthefirstbrickwall,youmaywanttocreateabasicsetofaccountsasthereisn’tanoverwhelmingamounttoanalyseorcompare.Thismayinclude: Coverpage Contentspage Summaryofaccounts ProfitandLoss BalanceSheet Thiswillenableyoutoseethebasicsofyourbusinessandbasedecisionsonyourcurrentfigures.Asyourenterprisegrowsorencountersitsfirstbrickwall(whereyou’relikelytoneedtomakeasignificantinvestment),youmaywanttorethinkwhatisbeingreported.Thisistoensurethatthecorrectperformancedataisanalysedtohelpinformyourdecisionmaking. Iwanttoanalysemygrowingstartupbusinessinmoredepth,whatdoIinclude? Asyourbusinessdevelops,it’slikelytohitthefirstbrickwalloftheStagesModel.Inevitably,problemsmaycropupsuchasneedinganincreaseinfunding;inturnyoumightdecidetostartassessingyourpayablesandreceivablestogetabetterideaofthemoneyyouhaveyettoreceive,andmoneytobepaidout. Thisiswhenyoushouldstarttoconsidercreatingamoredetailedsetofaccounts.Otheraspectssuchasabudgetwouldallowyoutopinpointareaswhereyouarespendingtoomuchortoolittle.Itmaybebeneficialtoadditionallyinclude: Payables Receivables Budget Cashflow Ofcourseit’stemptingtokeepthecriteriayou’remonitoringthesameifyourbusinessisgrowingatasteadypace,oryousimplyjustdon’tknowwhatelsetoincludethatwouldbebeneficial.But,asyourbusinessexpandsthenumberswillalter.Itcouldbeusefultofocusonvariousaspectssuchasspecificdepartmentsorsegments. Myenterpriseisatthefastgrowthstage,whatshouldIreport? Afastgrowthbusinesstypicallyincludesmorefactorsintheiraccountstoprovideamorespecificanddetailedbreakdownofperformance.Here'swhatislikelytobeincludedinthesummary: KeyPerformanceIndicators(KPIs) ShareholdersLoansTransactions Accrualsandprepayments Segmental/departmentalanalysis Profit&Lossactualvslastyearand/orforecast Bymonitoringtheseaspects,you’reundertakingadeeperunderstandingofyourbusiness,morespecificallyitsstrengthsandweaknesses.Afteralltomakesignificantbusinessandinvestmentdecisionsrequiresanindepthknowledgeofthesefactors.Remember,knowledgeispower! Ifyourbusinesshasscaledthesecondbrickwallandmovedintothefinalphaseofexpansion,youmayfinditmorebeneficialtoincludejusttheminimuminyouraccountstoallowyoutofocusonthefourorfivemostimportantcriteriainyourenterprise. Theissueherebeingyourbusinessisofasignificantsizewherebyyoucan’tcontinuetokeepaddingelementstoyouraccounts.Itbecomesunproductiveandsimplificationislikelytobethebestrouteforward. Soconsiderexactlywhatyouneedtoseeonaregularbasisbasedonwhichphaseofgrowthyou’recurrentlyin.Remember,thereisn’tanythingthatyouhavetoinclude;onlytheaspectswhichwillhelpyouexpandyourenterprise.UltimatelyusingtheStagesModelshouldallowyoutodeterminewhereyourbusinesscurrentlyisandensureyouhavethemostsuitablemanagementaccountsbasedonyourneeds.Bearinmindthatit’snotnecessarilythelengthofthedocumentthatisimportantbutthecontentanditsusefulness. Thispostwascreatedon06/09/2016andupdatedon28/10/2019. Pleasebeawarethatinformationprovidedbythisblogissubjecttoregularlegalandregulatorychange.Werecommendthatyoudonottakeanyinformationheldwithinourwebsiteorguides(eBooks)asadefinitiveguidetothelawontherelevantmatterbeingdiscussed.Wesuggestyourcourseofactionshouldbetoseeklegalorprofessionaladvicewherenecessaryratherthanrelyingonthecontentsuppliedbytheauthor(s)ofthisblog. 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