Tag Archives: Accountants

What makes good management accounts?

Usually management accounts look very similar to the set of accounts that you get at the end of the tax year, but on a more regular basis – usually monthly – and in more detail.

Most cloud accounting software produces all these reports, so surely that’s enough? In some ways, yes it is, but there are two things to remember:

First: “rubbish in, rubbish out”. Simply printing out a snapshot of the accounts is unreliable. To improve the quality of the information you need to:

1. Make sure you have enough detail to see what’s going on – “Administrative costs” is good enough for the year end accounts, but does it help you see where the costs have built up?
2. Check all the sales and purchase costs have been included (and the accounts are up to date). this sounds simple, but isn’t as common as you’d think.
3. Think about making sure that only costs associated with this month are included – if you deduct a whole year’s insurance costs from one month’s sales your results may be skewed disastrously.
4. This is where stock counts come in, but also prepayments (spreading an invoice over several months) and accruals (estimates of costs not yet invoiced).

This creates accurate and reliable accounts. The second thing to remember is that there are no rules as to what you need to show in management accounts. The real benefits come from shedding light on what’s going on “under the hood” in your business.

Things like:
Financial metrics: debtor days (a comparison of how long customers take before paying), ratios splitting sales between different products or services, etc
Non financial metrics: customer numbers, spend per customer, active orders, etc
Variances: how this month compares to last month, or to forecast
Forward plans: a radar highlighting where problems should be expected, and an idea of liabilities (tax bills) in future.

Good management accounts should give you the information you need to identify the actions to take to steer the business towards the objectives that you want and they help you track the results of those strategies as well as the unintended consequences.

This is not about having reams and reams of paper to look through every month. You need a dashboard that shows the information that you need neatly summarized so that it doesn’t take an expert to find the figure that you want, and clear and unequivocal so that you can make decisions quickly.

If you would like to find out more, or you have a specific issue that you need help with then contact Susie either via the website here or direct on 07801 199671 or susie@poundlane.co.uk

What’s the difference…?

Recently I was at a networking lunch where I was asked why a business would use my services instead of relying on their usual accountant.

It’s clear from the number of accountants who have introduced me to their clients that I’m not their competition. I don’t replace the services that a traditional accountant offers; I work alongside them to improve the information they have to work with and help their clients understand the figures.

The first thing to recognise is that a large number of businesses don’t need my help.

A lot of businesses follow quite a simple model; they buy in goods, add a set margin and sell on. (Simple doesn’t mean easy; it’s just not difficult to understand) There’s a few accounting jobs there that have to be got right but so long as the margin is right, and costs are kept under control the business will run successfully using the standard accounting reports.

The same applies to established businesses who understand what makes them profits. If doing what they’ve always done works for them, then they don’t need my help. (I’m happy to work with them, but they probably don’t feel the need.)

So which businesses does that leave?

I specialise in helping food manufacturing businesses where working out the cost of the product is more complicated and where making one key product creates a number of other products which are often less profitable or harder to sell.

In these sorts of cases the answers that business owners need doesn’t come from analysing the year end accounts differently, or from producing the accounts more often. The figures required come from changing what you measure in order to get information that shines a light on what’s happening inside the business.

– Does it matter how much the total gross margin is if you make a huge profit on one product, but lose most of it on the others? Questions that management accountants answer

– Would you be able to sell more units at a slightly lower price and actually increase your bottom line?

– What will happen to profit if you increase sales by gaining a new customer but need to employ more people and change your delivery method?

It’s all too easy to allow customer demand to dictate how a business grows, but if you have the right information you can make sure that the business is developing in the way that the owners and management want it to.

It’s when they want that kind of information, plus my experience of working in business, managing finance teams and understanding the accounting information that businesses come to me.