Selling a business will put its numbers under close scrutiny. Buyers want to gain an understanding of business drivers and expectations of future performance. Having decent management accounts helps create a good impression and having key information available eases the inevitable pressures of due diligence.
Leaving aside the M & A perspective, having great management accounts makes sound business sense. Incisive information helps you improve performance and gives a good basis for planning ahead. Quality information also should make it easier to gain access to funding.
The 4Rs of management accounts
The management accounts I encounter vary greatly in terms of content, presentation, timeliness and to a lesser extent reliability. So what are ‘great management accounts’? I believe there are 4Rs…..
A while back I helped a training business that was struggling to understand its margins for its different income streams -the financial controller was using a standard format from the accounting software and there was no information in the management accounts about margins (the main cost was people and the wages of all staff appeared on one line in the accounts). The required information was available, but it needed to be brought out and presented in a way that reflected how company did business.
I’ve seen management accounts that just comprise a profit and loss account. A balance sheet, together with information on stock, debtors and creditors days should help you monitor the business and maximise cash flow.
Information will vary between businesses. Non accounting information can be useful, such as quantities/hours supplied or order book information.
I could go on…. but in short management accounts should help you manage your business!
Does the idea of extra information seem mindboggling? Information should be easy to digest so that you can home in on the key issues:
- Only include headline information in the first page of the profit & loss account. How much was spent on (say) stationery won’t help you understand the big picture. Yes, the detail should be available, but in supporting sheets.
- Visual presentation of information can be helpful, such as graphs when you want to see trends.
- Rounding numbers say to the nearest £000 will also make information more readable.
Unreliable information can lead to bad decisions. My article A true story – where did the money go? gives a real life example.
Are you really that interested in accounts that are two or three months old? Probably not.
On the other hand I’ve seen businesses that produce their accounts within a week of the month end. While this may be ambitious for many small businesses, I’d say that you should aim to have accounts within 3 weeks. Mechanisms to allow for gaps in information, such as invoices not yet received, should ensure that the accounts are timely but still reliable.
There is a huge range of information that can be produced… and in different ways. Resource and willingness to actually use the information will also have a bearing on the way you go. However don’t feel constrained by the way things have been done in the past, think about what is really important to the business and make the accounts work for you.
If you would like a fresh perspective to help you make your accounts ‘speak to you’ then do get in touch by e-mailing firstname.lastname@example.org or calling 07836 331677.