Debbie Hancock

Debbie Hancock

Owner of Southbourne Accountancy & Business Services

Management Reporting - What is it and do you need it?


 As a limited company you know that you must file a set of accounts every year, it is a statutory requirement and something that doesn’t seem to provide you much value. You cannot make proactive quick decisions based on historic data that is now probably out of date.  


Yet a set of accounts can provide valuable information, allowing you to make good decisions based on current data, this is why large companies employ management accountants to work inside the business. These large companies will have up-to-date accounts every month, they will be able to spot any potential issues and react quickly to resolve them.  


Improving your businesses financial efficiency requires a clear overview of your key numbers, so you can track your performance and drive improvements. 


So, what are management accounts? 


Monthly management accounts are a snapshot of the financial health of your business. 

It is good practice to get into if you want to grow sustainably because you can plan based on real numbers and are equipped with the facts if you need to change course. 


Thinformation included in a set of management accounts can vary as it depends on the needs of the business and it’s stakeholders but generally, they include: 


1) A profit and loss for the current year and a forecast for the next 6- 12 months.  

2) A Balance sheet and a forecast for the next 6 – 12 months 

3) Both of these will have comments explaining key numbers and possibly a variance to forecast or budget.  

4) A cash flow statement and a forecast for the next 6 – 12 months 

5) KPI (Key performance indicators) which are relevant to your company. 

6) Risks and opportunities which may impact the above forecasts and what you can do to mitigate those risks? 

7) Trends – What trends can you see in the numbers, how do these compare to competitors, is there any external factors impacting the numbers.  


6) Insights – So what? How can we improve the position above? What drivers do you have control over and how can you use them to change the forecast outcome? 


The purpose of management accounts is not to provide a whole load of extra numbers and data which really doesn’t make any sense and doesn’t help you to support the business. The numbers provide the data but the key part is understanding what those numbers mean to your business and what you can do to impact them.   


Smaller companies they may not be able to afford a full-time finance expert, but they can still benefit from this service with a part-time or outsourced advisor. Below are the benefits available from having regular management accounts.  


1) Helps to control costs: Month on month data will enable you to spot trends and anomalies. If one particular month stands out, you can dig down into the numbers and understand why. Some businesses continue to pay for items they longer use as they do not regularly review their costs.  


2) Spot potential problemsIs the debtor balance (amounts receivable) increasing without a corresponding increase in sales? If so, then this gives you a signal to look into unpaid invoices. Some management accounts include a review of unpaid invoices.  


3) Compare budgets and forecasts: This will help to understand if your business is moving in the direction you wanted it to. Are sales picking up as expected, if not, why?  


4) Understand the profitability of products/services: Overall, the business may be profitable, but wouldn’t it be useful to know if you had an unprofitable product or a high performing product that was generating most of your profit. This will help you to make decisions on what to focus on.  


5) Helps with financingWhen seeking external financing the lender will often request a business plan along with current accounts and forecast data. This will greatly improve the businesses change of securing funding. It also provides the shareholders with reassurance that they can afford the finance repayments.  


6) Spot opportunities: Management accounts may highlight an excess of cash above and beyond the buffer you like to maintain. This could provide the shareholders will confidence in making that next investment.  


7) Cash Planning: Even though the business bank account may look healthy it is important to understand future cash commitments. Within the bank you will have cash set aside for Corporation Tax, VAT, supplier payments, payroll, stock etc which can cloud your understanding of the cash position. Forecasting will enable the business to see those payments going out and understand if there is enough cash to sustain the business or make those desired purchases.  


8) Aids risk management: By understanding what risks and opportunities can impact the businesses future, the shareholders can make decisions to mitigate those risks or have plans in place if those risks materialise 


9Tax Planning and Dividend Payments: When up to date information is available, a director/owner can plan with greater confidence when remuneration can be takenDividends can only be taken when a company has distributable reserves, so for less established or less profitable companies this will need careful monitoring, to ensure too many dividends are not taken through the year. 


10) Detection of FraudRegular accounts review will increase the possibility of detecting fraudIf long periods pass by without a financial review the wrong doings will remain hidden and it may become more difficult to uncover.  


11) Helps to identify seasonal fluctuationsIt is important to understand and plan for seasonal fluctuations and align income and expenses as much as possible. Some expenses will continue even during a low season; therefore, the business needs to prepare and have cash reserves for this period. 


Management accounts put you in the driving seat of your business and mean you are no longer flying by the seat of you pants and relying on chance.  


If you’re looking to get in real control of your financial destiny, we’ll work with you to set up a management pack that puts you firmly in the driving seat. 


Talk to us about setting up management reporting 


2. Download our free guide on “stopping your fitness business running out of cash”  

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