As mentioned in my previous blog the eyes of many small business owners can glaze over at the thought of looking at a set of accounts. I can sympathise – going through lots of badly laid out and sometimes unimportant information is not appealing! As a numbers person I can handle it, but for non accountants? …..well yes, I can see it IS boring!!
Accountants and bookkeepers are sometimes disparagingly referred to as “bean counters” who are regarded as a necessity, but adding little value. Producing figures that make the reader’s eyes glaze over can only support this view!
At the risk of stating the obvious, management accounts are prepared to help you manage your business. SME accounts software packages usually come with standard layouts of accounts and whilst these can be tailored, all too often this doesn’t happen. How can management accounts be made to work for you?
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I feel that they should be relevant to your business. They should convey the profitability of the main income streams and the costs in a way that mirrors the organisational structure. As the key drivers in your business change, so should the structure of your management accounts.
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To avoid incomprehensible lists of figures there should be lead sheets with salient headline information and supplementary sheets to deal with the detail.
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Non financial information that is relevant to the business should be included (eg: units produced or hours worked) and also appropriate key performance indicators (perhaps average selling price or margin per unit).
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Business owners often focus on profitability. However the accounts should also contain balance sheet information with due attention to stock and debtors as it is important to pay attention to these areas to maximise cash in the business.
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To be an important and effective business tool – the accounts should “talk” to the reader.
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Management accounts can be used to benchmark actual performance against your business plan. It is better to flag issues sooner rather than later so that any corrective action can be taken early.
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The accounts should be reviewed to highlight issues in the business that need attention. If they don’t make sense it either is a signal that the business is not running in line with expectations (or that there is something wrong with the accounting).
Properly structured management accounts help you understand the business’s dynamics and make for better decision making – making beans part of your recipe for success! If you watch Dragons’ Den you will see pitches torn apart because people don’t understand the financial side of their business. This also applies to other forms of funding including banks – funders want to have confidence that the business is professionally managed…..
Management accounts also provide an excellent platform for forward planning, although that’s for another blog!
