Management accounts – are yours fit for purpose?
Management accounts are a vital tool for running any business, whatever its size or nature, and although they should be bespoke for the individual business, there are a number of basic principles you should follow to ensure that your company’s management accounts are fit for purpose.
Get your management accounts finalised as soon as possible after each month-end. This requires some organisation across the business prior to and around the month-end, but usually there should not be a reason to go beyond three or four days into the new month.
Management accounts – what should they include?
At the very least you should include the following reports:
- Profit & loss for the month and year to date (ytd)
- Profit & loss (ytd) compared with the prior year and with this year’s budget or forecast
- Gross profit analysis, ideally by product and by client
- Balance sheet compared with the prior year
- Aged debtors, including a list of the actions being taken to collect the older debts, say over 60 days
- Cashflow model. This should be backwards looking for six months and forward-looking for a period that covers at least your next two quarterly VAT payments
The cashflow model, which might be the most important document, can be produced on the first working day of the month if you are sufficiently organised and can be circulated ahead of the rest of the management accounts.
All of these reports, with the exception of the cashflow model (which should be prepared in Excel), should be capable of being produced at the press of a button by your accounting software.
No? Then change your accountant and / or your accounting software!
Share and take action
Your management accounts should be shared across your business as far as necessary to ensure that actions to improve profits and cashflow and reduce costs and risk can be taken as soon as possible.
There is more to management accounts than mentioned here, but if you follow this advice then you’re well on your way.
And if you need help? Click here or give us a call on 020 7384 6800.Michael @diaryofanomb