Management accounts: the monthly numbers you run the business on

Management accounts are the internal financial reports a business produces for itself — usually monthly, usually within two weeks of the month ending. They exist for one purpose: to let the people running the business make decisions with numbers rather than with impressions.

They are not the statutory accounts, and confusing the two is why many small businesses have neither. Statutory accounts are prepared once a year to a prescribed format for a tax authority or registrar, are filed months after the period they describe, and are useless for management precisely because of that delay. By the time they arrive, the decisions they might have informed have already been made badly.

What a monthly pack contains

• Profit and loss for the month and year to date, compared against the same period last year and against budget if you have one.
• Balance sheet at the month end, mainly to see debtors, creditors, stock and cash moving.
• Cash position and the short-term forecast, which is the page most people read first — covered in cash flow forecast.
• Aged debtors and creditors: who owes you, who you owe, and how overdue.
• Gross margin by product line or service, which is where the commercial story usually is rather than in the total.
• Two or three operational numbers that matter in your trade — utilisation, occupancy, orders, average order value. Financial reports alone rarely explain a bad month.
• A short commentary. Three sentences on what changed and why is worth more than any of the tables to whoever reads it later.

Timeliness beats precision by a wide margin. Accounts that are ninety-five per cent right and arrive on the tenth of the month change decisions; accounts that are perfect and arrive on the twenty-eighth describe history. Small businesses routinely delay the pack waiting for one supplier invoice, and the delay costs more than the accrual estimate would have.

Producing them without an accountant

1. Close the month properly: reconcile the bank, post accruals for known costs not yet invoiced, check nothing is sitting unallocated. The close discipline is what makes the numbers trustworthy.
2. Fix a date — the tenth, say — and publish on it whatever state the world is in.
3. Compare against something. A number alone means nothing; against last month, last year or budget it means something immediately.
4. Look at the three largest variances and write down the cause. This is the actual work; the tables are the input to it.
5. Keep the pack short. Four pages read monthly beats twenty pages read once.
6. Review it with somebody. The value doubles when the numbers have to be explained out loud.

What they are for

A monthly pack answers four questions that are otherwise answered by feel: whether the business made money last month and why, whether it will have cash in three months, which lines or customers are actually profitable, and whether the thing you changed last quarter worked. Businesses that produce them notice problems roughly a quarter earlier than businesses that do not, which is usually the difference between an adjustment and a crisis.

Where they come from

Ettex Books produces the underlying figures from what has been recorded, with the reconciliation step covered in bank reconciliation and the month-end sequence in month end close. The commentary and the pack itself sit in Ettex Docs, and any operational numbers you add usually live in Ettex Sheets.

The boundary: we are not your accountant, do not prepare statutory accounts and do not file anything. Management accounts are internal and unregulated, which is what makes them flexible — the format is whatever answers your questions, and the only rule is that it stays the same long enough for comparisons to mean something.

Two numbers in them are judgements rather than measurements. Revenue recognition decides what counts as this month’s income, and where leases are on balance sheet, lease accounting front-loads the charge in a way that makes early-year comparisons misleading unless someone explains it.