Four steps to understanding your management accounts

Effective management of finances is a crucial aspect of any thriving business.

To make good decisions, management teams need good information. And that information comes from the accounting system. Does your business have the relevant management information (MI) it requires to make key strategic decisions? Are you getting real meaning from your MI?

To answer the above questions, consider how you use the information currently being prepared. Is it something that arrives at the right time, providing the answers and insight you need to run the business? Or, is it a historical document that confirms what you already knew, that is given a cursory review and then quickly filed in a drawer along with the previous versions?

If the former, then the chances are you are getting the right data. If the latter, perhaps it’s worth looking again at this area.

Steps to take…

1. Understand the information that you need to run the business.

Think beyond the accounting detail. Look at how the business monitors profitability - where does it make its money? How do you monitor performance – activity levels/output?

As a guide, aim to identify no more than 5 key indicators that you would like to monitor. They need not be purely financial.

2. Plan how to get this information

Having worked out the information you need, build a plan to capture the detail. Keep in mind the cost/benefit balance in gathering the data – it needs to be readily and quickly accessible if it is to be used effectively in the business.

3. Combine the information to give meaning

Look at how the data you have gathered can be compared and analysed to provide the information the business needs. Simple manipulation in a spreadsheet can often deliver valuable insights into the key drivers behind an operation.

4. Present the key findings

The temptation in a process like this is to deliver a volume of detailed information, at which point the meaning is then lost.

The output should be a review of the key indicators (as noted earlier – around five) with commentary to interpret that information. Making reference to budgets or trends will help reinforce the analysis.

Good decisions will see your business grow

If you understand your business you are much more likely to make good decisions that see it grow.

Management information can and should be a valuable tool so it’s worth taking time to think about what information you would like to receive – or seek advice on what is possible, and then compare this to what you actually receive.

Improving your management information need not be a costly process and will certainly deliver real benefit.

How we can help

Our Business Solutions team are on hand to help. Get in touch with a member of our Business Solutions team for an initial chat to find out how we can help.