Monthly management accounts

What are Monthly Management Accounts?

 

The first thing to note about monthly management accounts is their frequency – this immediately marks them out as different from year-end accounts.

Why monthly? Because management accounts serve a strategic purpose for your business. They provide valuable, ongoing performance data and provide the analysis and numbers you need to gauge your enterprise’s financial health.

Another thing to note about management accounts is that they aren’t mandatory. No one is going to chase you for non-compliance if you don’t do them. And you certainly don’t need to submit them to HMRC.

However, this also means that management accounts can vary from company to company in terms of what they focus on. They’re a tool to support your business, and you can adapt them for your specific needs.

However, there are still several crucial elements that monthly management accounts should include.

What to include in monthly management accounts

Profit and Loss Statement

This provides details of your revenue, costs and expenses, month on month. At a fundamental level, it will tell you whether your business is making money.

Profit and loss (P&L) statements can expand on this by including comparisons with the previous year and where figures are at variance with budgets.

Where necessary, your management accountant can segment P&L by department, to assess variations in profitability.

P&L may also include sales costs, such as expenses relating to materials or production.

Another useful set of figures to include are gross profit margins, to help in the fine-tuning of prices.

Key Performance Indicators (KPIs)

Monthly management accounts can give clarity about which areas of your business are performing the best.

Using KPIs, you can measure specific aspects and dynamics of your organisation and see where you’re reaching your goals, or where you’re falling short.

KPIs can include metrics such as:

  • Staff performance
  • Departmental performance
  • Customer invoicing.

These types of measurements allow you to monitor the performance of key management staff and specific departments. And by looking at customer invoicing, you can see in which areas your business is proving most successful.

This is by no means a full list of KPIs, however. You can use your management accounts to focus on those areas of business you most want to improve and to ensure your enterprise operates to its full potential.

Cash Flow Position

As the lifeblood of any business, cash flow is an essential indicator of the health of your company.

If you know your cash position, month on month, you can make informed decisions about budgets and investments. It will also tell you if you need to access funding.

There are various details you can drill down to with cash flow, including:

  • Debtor days ratio
  • Historical figures
  • Budget

The debtor days ratio measures how quickly you’re collecting the cash that people owe you. This will allow you to forecast your cash flow in the coming months, and help you to avoid overextending yourself financially.

Historical figures show you how efficiently your business is generating money over time. It can reveal trends and patterns, such as seasonal activity. This information helps you plan.

Being able to budget, based on regular reporting, is a useful tool for planning where to allocate money to different areas of your business.

Balance Sheet

This is a useful snapshot of the current financial health of your business. It enables you to understand its value based on:

  • Assets
  • Current liabilities
  • Sources of finance.

Assets will include your fixed and current assets, your stock, debtors, cash and any prepayments.

Current liabilities cover creditors and taxes, as well as other liabilities.

Your sources of finance should include net assets, debts and shareholder funds.

Why Have Monthly Management Accounts?

Monthly management accounts give you useful, current data on which you can base your decision-making.

They go beyond the basics of bookkeeping and annual accounts, providing a valuable tool for planning, forecasting and analysis.

A management accountant combines accounting skills and knowledge with business insight and an analytical perspective. This provides a level of support and guidance that goes beyond the traditional accountant’s role.

Management accounting supports strategies, helps improve and optimise processes and identifies issues earlier rather than later.

For more information about our management accounting services and how we can help your business, please call us on 020 8088 2590, email enquiries@vennaccounts.com or fill in our contact form and we’ll be in touch as soon as possible.