Management accounts for a growing business: what they are, what they contain and when they should arrive 

Management accounts are the monthly figures an owner uses to run the business: profit by product or site, cash, what is owed and due, and a few numbers that matter in your industry. They are not the statutory accounts. They should arrive while the month can still be acted on, and fixing late ones is usually a data job.

What are management accounts?

Management accounts are internal financial reports that show how the business performed over a period and where it stands today. They are prepared for the people who run the business, in whatever form suits the decisions those people make.

You may hear them called MIS reports, management reports or simply the monthly pack. The name is not important. What matters is that they answer the questions an owner asks every month. Did we make money, and where? Is there enough cash for the next two months? Who owes us, and whom do we owe? What has changed since last month?

There is no fixed legal format. You choose the layout, the level of detail and the comparisons. That freedom is the whole point, and it is also why so many businesses never end up with a pack that is genuinely useful.

How are they different from the statutory accounts?

Statutory accounts are the annual financial statements a company prepares to meet the law and to inform outside readers such as the tax department, lenders and the registrar. They follow set rules, are prepared once a year and look backward.

Management accounts are written for a different reader. They come monthly or more often, they are shaped around what the owner needs, and they look ahead as much as back. They can show one site, one product line or one group of customers - something a statutory set does not do.

Both come from the same books. When the books are kept up through the month, the management pack is almost a by-product. When they are caught up only at year end, the pack will be late, thin or both.

What should they contain?

Keep the pack short. Four to six pages that get read are worth more than thirty that do not. These are the parts to start with.

Profit by segment

One profit figure for the whole business hides what is really happening. Split it by whatever drives your decisions - product, service, site, branch, project or customer group. A business can be profitable overall while one site loses money every month, and only the split will show it.

Show the current month, the same month last year if you have it, and the year to date. Add a short note on the two or three largest movements and the reason behind each.

Cash

Profit is not cash. Show the bank balance at month end, the money that came in and went out during the month, and a simple view of the next few weeks. An owner who can see the cash position decides on hiring, stock and purchases with far more confidence.

Receivables and payables

List what customers owe you and for how long, and what you owe suppliers and when it falls due. Group the amounts into age bands such as current, thirty days past due and older. This page often holds the most useful action of the month: a slow payer to call, or a bill to clear before it attracts a penalty.

The three numbers that matter in your industry

Every industry has a handful of figures that warn you early when something is going wrong. Choose three and track them every month. A few examples, to be adjusted to your own business:

• Construction: cost to date against budget on each job, and work billed against work done.
• Retail: sales and margin by store or category, and stock held against sales.
• Manufacturing: material cost as a share of sales, and the value of stock in hand.
• Professional services: billable hours against available hours, and work not yet billed.

Your three may well be different. Ask yourself what you would want to know first if a bad month were on its way, and put that on the first page.

When should they arrive?

Early enough to act on. A report that turns up after the next month has begun tells you what you could have changed, not what you still can. For most small and mid-sized businesses, a sensible target is within the first working week or so of the following month.

Choose a target date and hold to it. The date matters more than the exact number of days. An owner who knows the pack lands on the same day each month starts to plan around it. An owner who never knows when it will come soon learns to ignore it.

Some businesses also keep a short weekly view of cash and sales, because a month is a long wait when cash is tight. This does not need to be a full pack. Three or four figures on a single page will do.

Why do they arrive three weeks late, and how do you fix it?

When the figures run late, owners tend to blame the accountant. In our experience the delay begins earlier, with the data. No accountant can close a month until the inputs are in.

The usual causes of late data are these:

• Bank statements and receipts reach the accountant weeks after month end.
• Sales sit in one tool, purchases in another and payroll in a third, and nobody brings them together.
• Expenses are claimed in bulk, long after the money was spent.
• Nobody owns the monthly deadline, so each person waits for the next.
• The same item is recorded in two places and has to be matched by hand.

The fix is to treat this as a problem of how data flows. Set a cut-off date for inputs, and make one person responsible for each of them. Feed bank data in automatically where you can. Record every transaction once, in the system where it starts, and let the accounts read from there.

A written month-end checklist with dates and owners does more than most people expect, because it shows exactly where the delay sits. Quite often a single late input, such as one branch's cash book, is holding up the whole month.

Be careful about buying new accounting software as the first step. If the inputs are late, a new system will simply receive them just as late. Sort out the flow first, then decide whether a tool is needed at all.

What makes a management pack good enough to trust?

A pack is useful only if the owner believes it, and trust comes from a few habits that cost very little. Reconcile the bank, customer balances and supplier balances before the pack goes out, so the cash and the amounts owed match real records. Use the same layout every month so that changes stand out. Keep definitions fixed. If sales means invoiced work one month and money received the next, the trend tells you nothing.

Put last month, this month and the year to date side by side. Add a short note on every large change, in plain words, written by someone who understands the business and not only the ledger. A figure with no explanation sends the owner back with a question, and another month is lost.

Be open about what is estimated. Accruals, stock counts and work in progress often rest on judgement. Mark those lines, explain how each estimate was made, and flag anything likely to change. An owner who knows where the soft spots are decides better than one who sees a clean figure and assumes it is firm.

Finally, keep a note of the questions asked each month. When the same question comes back, the pack is missing a line. Add it, and the next pack answers the question before anyone has to ask.

How do management accounts connect to budgets and forecasts?

A pack that shows only the past answers half the question. The other half is whether you are on track. Add a budget, or a simple target, for the main lines and show the difference. Even a rough plan made at the start of the year gives the owner something to measure against.

Add a short look ahead as well. In a small business this can be as simple as the expected cash for the next two months, built from known bills, expected receipts and planned purchases. It does not need to be exact. It does need to be honest and updated every month, so that surprises become rarer.

Treat the forecast as a tool, not a promise. When actual results differ, ask what changed and whether the plan should change with it. That habit is what turns a monthly pack into something you steer by, and it separates a business that reads its numbers from one that only files them.

The pack is a means, not an end. Once a month, ask whether each page changed a decision. If a page never does, drop it. If a decision was made on instinct because no page covered it, add one. The pack should grow and change as the business does.

Be honest about what the figures leave out. If a large invoice is still being checked or a supplier bill has not arrived yet, say so on the page. A short list of known gaps takes minutes to write and saves the owner from drawing the wrong conclusion.

Who should read them, and how?

The owner should read them, and so should every person who runs a part of the business. A pack that only the accountant reads has missed its purpose.

Hold a short monthly meeting, thirty minutes at most, with the pack on the table. Work through four questions. What is different from last month, and why? What surprised us? What do we do about it? Who does it, and by when? Write the answers down and open the next meeting with them.

Read from the front. The first page should carry the few numbers that matter. If you have to turn ten pages to find them, the pack needs trimming.

One month is not a trend. Compare it with the previous few months and the same period last year before you act. Seasonal swings can make a good month look bad, and a bad one look good.

If your figures keep arriving late, or you cannot tell what to do with them, a managed finance service can run the monthly process and explain the results in plain words. That is a business services decision, and it deserves to be weighed against hiring an accountant in-house.