I’ve taken a bit of a break from blogging over the summer and that has given me a chance to think about what I’m blogging about.
The service that I provide for my clients varies according to their circumstances, but it is always based on providing Management Accounts; but what does that mean?
From a distance management accounts give the same accounting reports that you would find in “year end”, “tax” or even “audited” accounts, but they are produced faster and on a more regular basis. Currently all my clients receive monthly figures.
This provides a benefit straight away; you can see how business is going while you still have time to react to solve problems or possibly look at ways of investing in the business in order to spend some of your taxable profits. It’s tempting, but you can’t rely on your bank statement to tell you how your business is going – the bank is only interested in recording how much money there is in your account!
When you get closer to them you can see that there is only a passing resemblance between statutory accounts and management accounts. There are lots of rules governing how statutory accounts are calculated, and the format they are presented in. This makes sure that investors (etc) can rely on the information and compare different companies.
By contrast, good management accounts should show information specific to your individual business. There are no rules, although in practice you should try to use the same accounting rules as statutory accounts, so that there are no surprises at the end of the accounting year.
So, what are you likely to find in my management accounts?
In order to keep this blog from being too long I have outlined the reports below, but over the coming weeks I will add more details. All these posts will be in the “Management Accounts” category.
It’s useful to know how much profit you’ve made in a month, but it is more useful to be able to compare it to something – the month before, or a target, or both!
A Balance Sheet: A summary of the Company’s assets, liabilities and shareholders’ equity. This gives a snap shot of what’s going on behind the scenes
Cashflow Analysis: It’s possible (in fact it’s probably usual) to make lovely profits but end up with less money in the bank than you started with.
At the end of the day the maxim is right – “Cash is King”; you can’t run a business without cash so it is vital that you have information to explain what’s going on here.
Aged Creditors and Debtors Reports: Feeding in to your understanding of your cash position, these reports help you see if you have customers who are behind on paying their bills, or if you can expect large remittances in future. Similarly, you will be able to see how much is owed to different suppliers, as you don’t want to slip behind their terms.
Your Specific Information: For each business there are different criteria that help reveal what is going on.
This might be a sales analysis, showing the split of sales between different categories of customers or the number of sales in the month; it might be the number of times a machine was used in the month; or even the number of hours worked by key staff.
Anything Else! From time to time there are different bits of information that you might want to see; the answers to particular questions that have cropped up, or comparisons over periods longer than a month.
Finally, all this information is great but on its own it’s not enough. For me, the most important part of producing Management Accounts is sitting down with the business owner or managers and talking through what they mean.
Sheets of paper don’t run successful businesses – people do!