What Makes a Reliable Management Accounts Report?

Forecasting & Planning

• Management reports often include projections. This means managers can anticipate future challenges or opportunities and stay ahead.
  • For example, periods when less cash is expected to come into the bank. This means provisions can be organised such as overdraft agreements.
  • There are some great tools on the market that can help with 3 way forecasting. You can build different scenarios to see the effect they have on your business. for example, how long would it take for me to make a profit if I hired 5 more sales staff, reduced my manufacturing cost by moving to a cheaper location and expanded my sales to Europe. These tools can show you what your P&L, balance sheet and cashflow could look like based on the assumptions you provide it.

Track Key Metrics

• It focuses on specific Key Performance Indicators (KPIs). These KPI’s should be tailored to the business’s goals. Examples include sales growth, profit margins, or other metrics
  • For example, shrinking profit margins. This will be a red flag and prompt investigation.
  • Return on Equity will measure the return generated on shareholders’ equity.
  • Current ratio assesses a company’s ability to pay short term obligations with its current assets.
  • Interest cover ratio will indicate how easily a company can pay interest on its outstanding debt.
  • There are also non financial metrics that are really useful too such as customer retention rate, employee turnover rate, carbon footprint.

Characteristics of a reliable Management Accounts Report

A reliable Management Accounts Report will have the following characteristics.

Accurate & Compliant

• All figures must be correct, free from error and align with accounting principles.
  • Income and costs should be accrued and deferred depending on when they occur and revenue recognition principles.
  • The balance sheet should be supported by reconciliations, schedules and external supporting documents like bank statements

Consistent

• The report should follow a standard format. This allows easy comparison between periods.
  • You’ll want your chart of accounts to be used consistently too otherwise it’ll become difficult to review variances.

Relevant

• This will depend on who the reader is. So, reports will be tailored to the reader’s needs.
  • A restaurant manager will want to know key indicators of performance. For example, sales and profit margins. They will then need other figures to explain good or bad performance. For example. sales per client, cost of staff per £1 of sales, cost of wastage.
  • A potential investor will not benefit from such level of detail. A report designed for this reader would focus more on the overall health of the company. It will look at KPI’s related to returns on investment for example.

Clear

• The report should be easy to understand with clear explanations.
  • Sometimes graphs or charts help to clarify complex data.
  • It’s important to show comparative figures with appropriate periods e.g last quarter, last year etc

Timely

• Management reports need to be produced promptly. This means decisions can be based on the most up-to-date information. There is no point closing the stable door after the horse has bolted.
  • It sometimes helps to have a soft close before you have a hard close. This will allow you to review provisional figures in advance of your hard deadline.

Comprehensive

• It should offer a well-rounded view of the business’s performance. This will highlight strengths, weaknesses, and areas for improvement.
  • We mentioned above that there are non financial metrics too which can help with as management accounts report. It needs to be tailored to what you need to see.