Part 1  —- The Management Accounts

Most companies need management accounts to be prepared on a timely and regular basis. The concept is a simple one. How can you plan for tax, capital expenditure, production/staffing increases unless you know exactly how the business is performing. However, if you are intent on working on the business instead of in the business, then management accounts are an important tool in your armoury.

How often the management accounts are prepared is dependent upon the businesses own unique trading conditions. The norm is monthly, but weekly or quarterly may also be appropriate. During the pandemic I arranged for a daily report from one of our subsidiaries that was used to manage the staff on and off furlough. 

There are several steps involved in the creation of management accounts.

1. Bookkeeping

This may sound obvious but the first step is to ensure that the bookkeeping is up to date and has been processed correctly. It is vitally important that the bookkeeper has a good grasp of accounting policies, both in general and how they apply to the company. This lays the foundation of the management accounts and errors here will increase the timeline of their production. Unless the bookkeeper has a recognised qualification, then time spent by the CFO/FD will be a solid investment.

2. Trial balance review

In the old days before computers the Trial Balance was a necessary review tool as it ensured that all the debits and credits matched. Modern computer software has mostly negated that but it is still important especially if there is a facility to have the previous years showing as a comparator. It is at this stage that any initial anomalies should show up. This is also the moment to process the financial adjustments not driven by invoices or payments. This includes depreciation/amortisation, finance agreements etc.

3. First draft

It does not matter if you use the softwares built in management account forms or an export to Excel using a vLookup, what is important is to have the layout correct. The current month, the year to date, comparator for the previous year showing the same timelines. If a budget has been entered it should also be displayed here. This is the first real opportunity to do a detailed comparison. How does the result compare to both last year and the expected budget? Now is the moment to identify what needs further analysis. The “WHY” is the biggest question to ask and understand.

4. Second draft

At this stage any anomalies should have been identified and either adjusted or accepted as correct. Any unexpected trends should have been identified and have a valid explanation. This is essentially the final review before preparing the presentation report.

5. Presenting the Final position.

It is very easy to fall into the trap of presenting from either a positive or negative viewpoint. This should not happen. The figures need to be presented in a neutral manner.  It may well be that there are positives or negatives within the management accounts and these should be identified and highlighted. There should obviously be a discussion on the management accounts with the CEO or owner/manager and this may allow for a positive or negative take. 

For a free initial discussion on the above article and to find out more , please contact me on [email protected] or call me on 07 306 162 553