Management accounts

Five years in business, and she had never seen a monthly profit and loss

She was not neglected. She had been paying for a bookkeeping service the whole time, and the year-end accounts had been filed correctly every year. What she had never once been sent was a profit and loss by month.

When we produced one, the useful thing was not the annual total. She knew roughly what that was. It was seeing the twelve columns next to each other: which months actually made money, and what the quiet ones cost her to keep running through.

None of that was hidden. It was all in records she was already paying somebody to keep. It had simply never been arranged in a way that let anyone see it.

What is actually in a set of management accounts

Monthly or quarterly, whichever suits the business: a profit and loss, a balance sheet, cash flow reporting, and budget against actual where a budget exists. Alongside those, the things that answer questions rather than just reporting: sales and profitability analysis, a review of the main cost areas, and debtors and creditors so you know what you are owed and what you owe.

The comparison is what makes it useful. A single month's profit figure tells you almost nothing. The same figure against the eleven before it, and against what you expected, tells you whether anything has changed and roughly when it started.

Management accounts explained, not just sent

A management accounts pack that arrives by email and is never discussed is a monthly reminder that you do not understand your own business. We have taken over from arrangements exactly like that.

So the figures come with an explanation of what they mean for the business, and we hold review meetings where that is wanted. We would rather you asked what a line means than nodded at it. Understanding the accounts is also the thing that lets you sign them off honestly at the year end, which is your responsibility rather than ours no matter who prepared them.

A client's own description of the difference

We would rather quote somebody else than ourselves. One of the Google reviews on our reviews page puts it better than our own copy does: that we not only manage the accounts but helped her understand her finances rather than bury her head in the sand, and that she is now more profitable than ever and feels in control.

That is the outcome this service is for, described by the person it happened to, on a platform where we cannot edit it.

What people actually do with them

The point of knowing early is that early is when you can still act. Pricing can change. A cost line can be renegotiated or cut. A quiet quarter can be planned for instead of survived.

One client came to us with a cash flow problem that the monthly figures had made visible before it became urgent. We worked with them on the position and they secured a loan through one of our partners. That is not something we arrange or advise on ourselves, and we would not claim otherwise, but knowing the shape of the problem three months before it arrived is what made the conversation possible at all.

Turnover is the number people quote, and margin is the one that matters

Business owners tend to know their turnover to the nearest thousand and their margin not at all. Turnover measures activity. It does not measure whether the activity was worth doing, and a business can grow its turnover every year while taking home less.

Management accounts are where that becomes visible, because gross margin sits in them month by month rather than once a year. We wrote about this at length in turnover means nothing without margin, which works through two real-shaped businesses where the bigger one takes home less.

What management accounts depend on

Management accounts are a report on the bookkeeping. If the coding underneath is wrong, the pack is wrong in a way that looks completely convincing, which is worse than not having one. A cost sitting in the wrong category does not change the profit total, but it does change every conclusion you draw about where the money went.

So this works best where we also do the bookkeeping, or where we have reviewed what is there first. If you want the same discipline once rather than monthly, and specifically at the point in the year where it still changes the outcome, that is the month 9 review.