Management accounts are regular reports designed to help you run the business. A useful monthly pack explains performance, financial position, cash pressure and the decisions requiring attention. It should be proportionate to the business, not a large collection of software exports that nobody reads.
In this article
- Close the bookkeeping period
- Review profit and balance sheet
- Compare cash and forecasts
- Agree actions and owners
Start with the questions the owners and managers need answered. Are prices covering costs? Which projects make money? Will cash cover the next quarter’s commitments? The pack should make those questions easier to answer using reliable figures and clear commentary.
Agree the scope and reporting date
Choose the reporting period, delivery date and responsible people. Define what counts as a completed month: bank reconciliation, invoice capture, payroll entries, stock information and material timing adjustments should follow an agreed close process.
State whether figures are final for management purposes or provisional because information is missing. Identify significant estimates and explain what may change. A report delivered quickly is useful only if readers understand its limitations.
Agree consistent accounting policies and report layouts so month-to-month comparisons mean something. Changing cost classifications every month can create apparent improvements that are merely presentation changes.
Include the core financial reports
| Report | Main question answered |
|---|---|
| Profit and loss | What did trading earn, and where were costs incurred? |
| Actual versus budget | Where did results differ from the agreed plan? |
| Balance sheet | What does the business own and owe at month end? |
| Cash movement and forecast | Why did cash change, and what is coming next? |
| Debtor and creditor summaries | What collections and payments require action? |
| Selected operational measures | What is driving the financial result? |
Show both the month and year-to-date position where useful, with comparatives that reflect seasonality. A quiet January should not automatically be judged against a peak December without explanation.
For businesses with distinct services or projects, segment reporting can help identify where profit is generated. Define allocation methods for shared costs and avoid presenting a rough allocation as a precise measure of project profitability.
Explain the story behind the numbers
Commentary should identify the important movement, its cause and the decision required. “Sales are down” is less useful than an explanation of fewer jobs, a changed product mix or delayed project completion.
Illustrative example: monthly revenue is £50,000 against a £55,000 budget, while gross profit is £17,000 against £22,000. Gross margin is 34% rather than the budgeted 40%. The business needs to investigate both volume and margin, not only chase the £5,000 revenue shortfall.
Suppose the evidence shows extra subcontractor costs on one project and a shift towards lower-margin work. The commentary should state that evidence, quantify it where supportable and propose an action such as reviewing future quotes or supplier arrangements. The explanation should not invent a cause because a spreadsheet needs a narrative.
Connect profit with cash
Include a short bridge explaining major differences between profit and cash movement. Customer debts, stock purchases, supplier timing, loan repayments and equipment expenditure can all affect the relationship.
Show a forward cash forecast with payment dates, tax commitments and realistic customer collection assumptions. Flag uncertain receipts and provide a downside scenario where a major payment is delayed.
A profitable month can still leave a cash shortage. Conversely, borrowing can increase the bank balance without improving trading performance. Readers should be able to distinguish both situations from the pack.
Choose a small set of relevant measures
Select measures linked to decisions: overdue debt, gross margin by service, utilisation, stock days or project recovery may be useful depending on the business. Define each measure, its data source and calculation so it remains comparable.
Avoid adding indicators simply because the software offers them. Five trusted measures with owners and actions can be more useful than twenty colourful charts. Where data is incomplete, show the gap and an improvement plan.
Review targets against the business model. A universal industry benchmark should not be inserted without a suitable source and context. Use the company’s own budget, trend and operational constraints as the starting point.
Finish with decisions and follow-up
Hold a short review meeting after delivery. Record the decision, action owner, deadline and expected effect. Revisit previous actions before adding new ones so the pack becomes a working tool.
For example, a margin issue may lead to quote-review responsibility, while overdue debt leads to named collection actions. Where the decision involves hiring, funding or expansion, scenario planning may be needed beyond the monthly reports.
Discuss EPOS management accounts around the decisions you need to make and the records available. For wider financial planning, outsourced CFO support can help you assess longer-term funding, growth and financial decisions. Review pricing information and agree the actual scope, frequency and responsibilities before commissioning a reporting pack.