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Tag: Management Accounts

Case Study: AMZCO Construction

Posted on by Susie Kevern

AMZCO Construction specialises in building and maintaining anaerobic digestion plants. They work on a small number of complex, multi million pound projects meaning that it is vital that they have timely, reliable information to help keep control of the finances.

On these projects it is easy for costs to spiral out of control so accurate comparison of spend vs budget is essential. The directors couldn’t see how profitable different activities had been or compare actual performance to the detailed budgets drawn up prior to the build.

The accounting software they were using was complex difficult to maintain but it was not possible to change software immediately so some other solution had to be found. I worked with the admin team to make sure that the accounts were accurate and reliable. With good data we could then extract the detailed information required to show actual spend vs budget and explain the overall business performance.

Once pre-existing errors were corrected we were then able to migrate the accounting to QuickBooks at the start of the next financial year, making the bookkeeping much more efficient and the reporting easier and more accurate.

With clear and comprehensive reporting the directors could manage the business effectively. More importantly, information showing spend versus the original budget was vital information to improving pricing on future jobs.

Now we are continuing to work together so that they have access to the support they need as and when they need it.

Business manager Rachel said: “Susie created the reports we needed to keep track of the business and have control over our finances. She has been supportive and friendly, delivering QuickBooks training and designing new systems to suit our business. Knowing that she’s keeping an eye on the finances means we can get on with running the business.”

You can read more and download the case study here: Case Study: AMZCO Construction

Get more information from your accounts

Posted on by Susie Kevern

Why is it that all year end accounts look the same? Does that reflect the information that readers need?

Accounting regulations are massively complicated and I am not disputing the need for that; it is important to make sure that any two sets of accounts can be compared with each other and take the same perspective.

The same thing happens with accounting software: when you set up software from scratch you get a basic, blank set of accounting codes that is a best estimate of what most businesses need.

In both cases the one size fits all approach is fine when it comes to working out the bottom line profit, when you’re simply deducting all costs from total income. But it’s totally insufficient if you want to use your accounts to provide information to manage your business with.

What sort of information might you need?

  • What about income: are you happy to lump all sales together, or would it be useful to compare revenue from different types of sales?
  • How about splitting sales by product type or customer location?
  • And what about your costs? You don’t want to over complicate things, but typically the objective is to separate the costs associated with delivering the product or service from the general costs of running your business.

This lets you measure how things are changing and provides answers to questions like “how come are we busier now but not making any more money?”

How about looking at

  • A comparison of your sales mix (spread of sales by product type),
  • a comparison of margin per customer,
  • the resulting change in percentage gross profit made on sales each month as a result

With a little planning and some organisation you can set up the accounts so that they give you simple m information that you can use to work out what actions to take.

If you want to develop this idea further, what about adding in some comparisons with non financial figures? Working out production wages per working day, or sales per hour worked?

How do you work within the structure? Do you add new codes for things you want to measure, or do you just squeeze them into the existing structure?

At the end of the day, while there is a legal duty to keep accurate accounting records are you in business to create data for the accounts, or are they there to provide you with information?

Take a look at my post about what goes into good management information here to find out more.

Good management accounts

Posted on by Susie Kevern

Financial Direction is about using good management accounts to improve profits and cashflow. That’s a pretty big claim, so what do I really mean?

Xero produces management reports for you (other software packages are available). They look very similar to the accounts you get at the end of the tax year, but the value comes from looking at them on a more regular basis – usually monthly – and in more detail.

Unfortunately just printing out the reports can give misleading results. Think about:

Are your accounts up to date? This sounds simple, but isn’t as common as you’d think.
Timing: if you deduct a whole year’s insurance costs from just one month’s sales your results may be skewed disastrously. This is where stock counts come in and also prepayments (spreading an invoice over several months) and accruals (estimates of costs not yet invoiced.

Once you have accurate and reliable accounts you can choose whatever figures you want to shed light on what’s going on “under the hood” in your business: really, the sky’s the limit.

Just to start with you need:

  • The right level of detail: maybe you want to bundle all office costs together but how about separating staff costs between office staff and production workers?
  • A profitable history is reassuring, but it’s the future that really matters. A forecast will show you where the risks are.
  • Then you need some KPIs that show how healthy the business is simply and speedily:
          • Financial: debtor day, profit margins, growth rates
          • Non financial: customer numbers, spend per customer, open orders
          • Variances: how this month compares to last month, or to forecast
        Good management accounts should give you information to identify the actions required to steer the business towards your objectives and track the results.

Case Study: Cooper Golding Ltd

Posted on by Susie Kevern

I have been working with Cooper Golding since 2018, supporting owner Paula Golby manage her growing business as she moved form strength to strength as a result of her focus on high quality, tailored recruitment services.

With multiple customers and revenue streams business management was proving a challenge and reliable information was hard to find. With sales were set to treble Paula contacted me looking for better information to show how her rapidly growing business was performing and better systems to manage operations.

They use Xero as their accounting system, which allows them easy access and maintenance of their accounts information. However, like many businesses enjoying high sales growth they were constantly investing in additional personnel, marketing and equipment.

Paula needed clear and detailed analysis to ensure that the decisions she was taking delivered the cashflow and profitability she expected.

It was crucial that the solution should be easy to use and scale up. The most appropriate solution was to improve the information that Xero reported and to create a simple structure of spreadsheets to allow the in-depth analysis required by the team.

With reports that allowed Paula and her team to see how they were driving growth they grew the business beyond expectation for 2018 while maintaining their high levels of customer service. As we continue to work together we now have the information we need to be able to assess proposed changes to the business and make better, faster decisions for the future.

You can download the case study here: Case Study: Supporting Business Growth

What makes good management accounts?

Posted on by Susie Kevern

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