You know how it goes. You’re at a networking meeting or just chatting to a customer/supplier/prospect/friend and they ask: “How’s business?”. Without a moment’s hesitation, you reply: “Great. Thanks.” We all do it. Nobody actually says: “Brilliant, thanks for asking. Sales are 17% ahead of budget, cash flow is good so I can head off to Barbados next month for an extra holiday” or “Actually, business is rubbish. I’m not sure how much longer we can carry on”.
Why do the conversations go this way? One reason is we don’t want to give too much away about our business but another may be that we simply don’t know how our business is performing to give an honest answer even if we wanted to.
How much money have we got in our piggy bank? Is it enough? Enough for what?
Thankfully, these questions can now be answered with more accuracy and more quickly than ever. Online accounting software (such as Xero) and bookkeeping tools (such as Receipt Bank) enable better, faster numbers to be prepared with less hassle so that proper business decisions can be made with up to date information. This accounting information can be collated into reports on a regular basis and reported to management - these are Management Accounts (also known as Management Information or MI).
Management Accounts are a snapshot of the financial health of your business and are best produced monthly as soon as possible after the month end. There is no set format - they should simply contain all the information that management needs to make informed decisions about the current and future performance of the business. They will normally contain sales and expenditure reports (profit and loss), current cash position, trade debtors (money we are owed) and trade creditors (money we owe). Non-financial information can also be included e.g. website visitor numbers, sales pipeline, conversions etc.
You can compare month on month or this year versus last year to identify trends but the real benefit comes when you compare actual performance against budgeted performance and use actual data to update a rolling plan to forecast future performance. This view of the future will answer the key questions such as:
- Will the business run out of money?
- If we need to raise finance, how much?
- Can we afford to take on an extra member of staff?
- How much dividend can the shareholders take?
- What is my business worth?
Stay in control of your business and achieve your goals
Monthly management accounts are fundamental if you are really serious about running and growing your business. Well thought out management accounts will help you stay on track to meet business and personal goals.
Ambledene Accountancy can help put together your management accounts, a budget and forecast that are properly aligned with your goals and, crucially, be on hand to explain what it all means. We can provide explanations alongside the management accounts and, if wanted, attend monthly or quarterly management meetings.