What to include in your management accounts | unbiased.co.uk

Management accounts are a type of financial report, providing insight on the financial performance of your business. Areyouanadviser? GotoUnbiasedPro logo-color Unbiased Togglenavigation Areyouanadviser? GotoUnbiasedPro Compare dropdown-arrow Stocks&sharesISAs Juniorstocks&sharesISAs Lifetimestocks&sharesISAs CashISAs JuniorcashISAs LifetimecashISAs SIPPs Services dropdown-arrow CompareISAs Calculators&tools Financialcoaching Findanadviser Tips&guides dropdown-arrow Pensions&retirement Homes&property Managingyourmoney Familymatters Getsmart Smallbusiness Allarticles&guides Costoflivinghub News Login Findanadviser Home Life'sBiggestDecisions Smallbusiness Whattoincludeinyourmanagementaccounts search-loupe eg.Pension, Homes, Mortgageor  Smallbusiness {[row.title]} {[row.info]} 10,000,000+m+ Customershelped 27,000 Mortgagebrokers&financialadvisers Advisers 2009 Est. Whattoincludeinyourmanagementaccounts Updated20July2022 5minread NickGreen FinancialJournalist Updated20July2022 5minread Therearethreeimportantfinancialstatementsineverybusiness:theprofitandloss(orincome)statement,thecashflowstatement,andthebalancesheet.Together,thesedocumentsprovideimportantnumbersandasnapshotofyourfinances.Butwhatdothesenumbersreallymeantoyou?Dotheyshowhowyourbusinessisgrowing?Dotheyshowyouconsistentlymeetyourforecasts?Dotheyshowpatternsinspendingthatcanimproveyourbusinessplanning?Togetthemostoutofthesefigures,manycompaniesalsoproducemanagementaccounts–aninsightful,in-depthanalysisofthedata.Managementaccountsaren’tmandatory–andthere’snofixedwaytodothem.Butthey’reinvaluabletoolsingoingbeyondthenumberstounderstandyourcurrentperformanceandplanforthefuture.Whataremanagementaccounts?Managementaccountsareatypeoffinancialreport,providinginsightonthefinancialperformanceofyourbusiness.They’recalledmanagementaccountsbecausethey’retypicallyusedbybusinessownersandmanagementtoinformstrategicdecisionmaking.Forthebestresults,managementaccountsareusuallyproducedmonthlyorquarterly,sothatyoucanmoreaccuratelygaugehowwellyou’redoingandmaketimelycoursecorrections.Perhapssurprisingly,there’snostandardor‘correct’waytodothem.Eachsetofmanagementaccountswillbeuniquetothatbusiness.Althoughthereareexamplesofgoodpracticeandpopularrecommendationofwhattoinclude,thefinalstructureofthereportwillultimatelydependonwhatinformationisimportanttoyouandyourmanagementteam.Whatarethebenefitsofkeepingmanagementaccounts?Justasmanagementaccountshavenofixedformat,neitheraretheymandatory.Still,it’sinyourbestintereststoproducethemconsistently,becausetheyturnyourfinancialperformancedataintoanalysisyoucanacton.Herearejustsomeofthebenefitsofkeepingregularmanagementaccounts: Monitoryourgrowth Youcancompareyourmanagementaccountsmonthly,quarterlyoryearlytoaccuratelymonitornotjustyourfinancialgrowth,butyourperformanceaswell.Forexample,lookingatyouraccountsreceivableovertime,haveyoudevelopedyourclientbasefromlate-payersintoon-timepayers?   Planforthefuture Lookingforpatternsinincomeandcashflowmeansyoucanmoreaccuratelyforecastyourfuturerevenue,ormakeallowancesfordoubtfulaccounts.Youmightevenspotseasonaldifferencesincashflow,sothatyoucanplanaroundslowermonthsinfuture.   Motivateforfunding Agoodsetofmanagementaccountsbacksupyourbusinessplan,andinvestorslovetoseethem.Youcanapproachinvestorsconfidently,readytoansweralltheirquestionsaboutyourbusinessperformance–whereasfailingtoshowanywillusuallyresultinaswift‘goodbye’.   Optimiseyourprocesses Whenyouunderstandyourcashflow,youcanmakeanyneededimprovements.Forexample,ifclientstakeawhiletopay,youcanimproveyourcollectionprocess,ormakeothercreditdecisionsquickly.Ifyouknowwhichcustomerspayregularly,youcandeveloployaltyprogrammesandattractiveofferstorewardthem. What’sthedifferencebetweenmanagementaccountsandstatutoryaccounts?Managementaccountsandstatutoryaccountsbothusedatafromyourincomestatement,cashflowstatementandbalancesheet.However,theyusethisinformationdifferently.Astatutoryaccountprovidesacleanandrefinedannualsnapshotofyourfinancialinformation.Theyfollowagenericformat,sothatshareholdersandtheHMRCcanseeyouroverallspending.They’reatick-the-box,compulsoryreportproducedonceayearforalllimitedcompanies,focusingpurelyonthenumbers.Amanagementaccountismoreforyou.It’sadetailed,raw,moreregularlookatyourfinancialinformation,goingbeyondthenumberstorevealkeyinsightsaboutyourbusinessperformance.WhatshouldIincludeinmymanagementaccounts?Asalreadymentioned,managementaccountsarebydefinitionbespoketoyourbusiness.However,hereareafewhelpfulsuggestionsofwhatkindsofinformationtoinclude.Overtime,yourchoiceofwhattoincludemayevolve,sothatyoucanformulatethemostusefulapproachforyou.Astrongsetofmanagementaccountswillprobablyinclude: Keyperformanceindicators(KPIs) EverybusinesshasasetofKPIs–alistofmeasurablegoalsyouwanttoachievewithinaspecifictimeframe.KPIscanbefinancialgoalsyouwanttoreacheachmonth,likegrowthinrevenue,grossprofitmargin,operationalcashflow,currentaccountsreceivablesorinventoryturnover.KPIscanalsobeperformancebased,suchasthenumberofsalesleadsyouwanttoachieve. WritedownyourKPIsandthenexaminethemagainsttherelevantnumbersinyourfinancialstatements.Lookingatyourincomestatement,areyoumeetingyourrevenuegoals?Or,lookingataccountsreceivableonyourbalancesheet,areenoughcustomerspayingwithinthedesiredtimeframes?Seewhereyou’redoingwellandlookforareasofimprovement.   Profitandloss Ataglance,yourincomestatementshowswhetheryou’reoperatingataprofitorataloss.Withamanagementaccount,youcandigdeeper.Compareyourincomemonthly:areyouregularlyoverorunderspending?Breakyourprofitabilitydownbydepartmentorlocation:whichdepartmentsorbranchesareperformingthebest?Compareyouractualstoyourforecasts:areyousettingrealisticprofittargetsordoyouneedtore-evaluate?   Cashposition Yourcashflowisyourlifeblood,sohavingadetailedunderstandingofitisvitalforeverydaybudgeting,investmentandfundingdecisions.Whileyourcashflowstatementsummarisesthecashenteringandleavingyourcompany,yourmanagementaccountlooksatthisdatatoidentifypatterns.Howlongdoesittypicallytaketoreceivepaymentsfromclients?Whichareasofthebusinesshavethemostoperatingcosts? Withanunderstandingofthesepatterns,youcanbetterforecastforthefuturebyplanningaroundhigherorlowerincomemonths,andallocatingmoneyoptimallyacrossthebusiness.   Balancesheet Yourbalancesheetprovidesanoverviewofyournetworth,showcasingyourassets,liabilitiesandowner’sequity.Whileabalancesheetfocusesonseeingthenumbersbalanced,amanagementaccounthelpsyoulookfordeeperinsights.Lookingatyourliabilitiesovertime,howwelldoyoumanagedebt?Howquicklydoyouturnassetsintorevenue?Howwelldoyougeneratereturnsoninvestment? Readingthis,itmightsoundlikeamanagementaccountneedstobeexhaustive.Butremember,yourgoalistoproduceonlythemostrelevantandvaluableinformation,andkeepitfocused,specificandtothepoint.Onlyincludetheinformationvitaltoyourbusiness,whichmightchangeasyourbusinessdoes.Goingintotoomuchdetailorincludingeverythingcouldturnthisintoalabour-intensivetaskyou’llbereluctanttodo,whichdefeatsthepurpose.Inshort,createsomethingthatyou’rehappyreading,becausethat’swhatyou’llbedoing.HowcanIusemanagementaccountstoaccessnewfunding?Foranybusinessinthegrowthphase,oranybusinesslookingtoimproveitscashflow,yourimmediatequestionis:howdoIaccessnewfunding?Havingconsistent,up-to-datemanagementaccountsisoneofyourtools.Forexample,ifyou’relookingforfundingfromabankorinvestor,agoodbusinessplanbackedbyforecastsandaccountscandrasticallyimproveyourchancesofsuccess–especiallyifyourmanagementaccountsaredoneregularly.Somelendersalsoacceptasetofmanagementaccountstogiveorextendcreditterms,whichcanbeahelpfulalternativeifyou’restillimprovingyourcreditrating.Ifyou’reasmall,fast-growingbusiness,youmightevenconsidercreatingasetofmanagementaccountsdedicatedtopitchingforfunding.Here,focusyourKPIsandinsightsondemonstratingwhyyou’regoodfortheinvestment.Whoshouldpreparemanagementaccounts?Aqualifiedaccountantcanhelpyouwithyourmanagementaccounts,sincethey’retrainedtomakesenseofnumbers.Theycanhelpyouexamineyourfinancialstatementsandpulloutdata,patternsorredflagsusefulfordecisionmaking.Payingforthisservicedoesn’thavetosetyoubackeither–monthlyfeescanbeaslowas£60,dependingonthelevelofserviceyourequire.Here’sausefulguideforestimatingthecostofanaccountant.Ideally,however,youshouldalsoplayakeyroleinformulatingthemanagementreport,sinceyouknowyourbusinessanditsgoalsbest.ShareyourKPIswithyouraccountant,sotheyknowwhatusefulfigurestoanalyseandhelpforecast.MatchmeI’dliketospeaktoanaccountant Signupforemailupdatestoreceivefinancialtipsandexpertadvice Abouttheauthor 424articles NickGreen NickGreenisafinancialjournalistwritingforUnbiased.co.uk,thesitethathashelpedover10millionpeoplefindfinancial,businessandlegaladvice.Nickhasbeenwritingprofessionallyonmoneyandbusinesstopicsforover15years,andhaspreviouslywrittenforleadingaccountancyfirmsPKFandBDO. 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