We are in an age of big data and technology, which often brings with it an overwhelming amount of information. For business owners, the challenge with this is not what is available but more what is important to your business. Thus this makes management accounting even more vital.
Management reporting isn't a one size fits all and not every solution will be applicable to your business however there are still some KPI's that should be considered.
The Importance of Being Budgeted and Benchmarked
For any well run business, budgets should be seen as the critical pillar in the financial cycle. Unfortunately, they are often misunderstood and misused by many business owners. Instead of something set and then forgotten about, budgets should be seen as a map of expectations finance wise for a business for at least the next 12 month period. A budget for a longer period can be handy in mapping out long term development but are less reliable and are more likely changed through monthly or yearly reviews.
Reporting against a budgets allows business owners to map actual business performance by using budget variance analyses on at least a quarterly basis. Doing this gives owners some reassurance that the business is heading in their desired direction and turns a retrospective report into a forward looking document. Seeing what is and isn't working allows business owners to be proactive and make the necessary changes to get back on course.
The underlying drivers of the business, remain a cornerstone of a good management reporting system as an explanatory tool for the business owner to map against and understand their results. In conjunction to these external benchmarks for an industry can also be useful tool for the business to report against.
Cash is King
It's a well known saying and remains true to this day as cash flow is still the key area of concern of most businesses. It isn't as simple as just reporting cash based on what's in the bank. Owners need to understand the cash flow cycle of their business and plan for pressure points while ensuring they are paying themselves.
Together with a budget, an annual cash flow forecast would greatly assist financing the business in the upcoming year. If a business is under regular pressure regarding cash flow, short term forecasts would be useful with managing creditors and payments, while ensuring debtors are also managed.
Understanding the underlying driving factors of a businesses profit and measuring those factors is incredibly important. They are often easy to measure on a fairly regular basis and can assist business owners and employees to strive for improved performance financially. These profit drivers may be different for each business, such as orders taken, new customer visits, hits online, phone calls, hourly rate, customer engagement... the list could go on.
Keep It Simple Stupid, or don't over complicate things. Reports that take a substantial amount of time to create and look wonderful can lead to either too much information or irrelevant information included. Most businesses are able to evaluate their performance with a simple dashboard of information. The key to this is to tailor it to your business.
Build Systems to Produce Results
Technology has continued to grow, with access to live data, computer processing power and artificial intelligence permeating accounting and management systems. These advances allow compiling customised management reports to suit the needs of individual businesses to become much easier. At XO Accounting, through the use of systems from our partner programs, Xero and Futrli, we can work with business owners to build proactive and meaningful reports.
Consider External Assistance
Often time, business owners may need external guidance and an outside perspective when designing a management report. Businesses may also benefit in having an external party lead regular meetings to evaluate business results, provide feedback and hold business owners accountable, to further help ensure their strategy is implemented effectively.
This is a service XO Accounting currently provides many of our clients, with a positive track record thus far. If your business could benefit from our expertise, please contact us now!!