Management Accounts – What do Accountants Produce as Standard and What are Their Uses?Jamie Allen
Most businesses, whether they outsource their accounting or maintain this in-house, will have a set of Management Accounts produced on a regular basis (monthly, quarterly or annually). It is worth noting that the format and content of these Management Accounts will vary widely depending on the size and needs of the business but also the service being offered by the accountant when this is outsourced. In fact, many Accountancy Practice’s will adjust their pricing based on both the complexity and regularity of the reports they produce or even market these Management Accounts as a key part of their offering and an opportunity to differentiate themselves from their competitors.
At a very basic level – Management Accounts will include a Balance Sheet and Profit and Loss Statement to provide a snapshot of the company’s results at a high level at a given point in time. These provide the foundation for building in additional schedules and reconciliations to expand the information included in the accounts. Quite often the schedules included will cover reconciliations or more detailed breakdowns of some accounts (e.g. Fixed Assets, VAT, Bank, Accruals, Prepayments) or even Cash Flow statements. At this stage, the Management Accounts are useful from a financial compliance perspective as these will contain all the information which is traditionally included in Financial Statements and provided to Auditors at the year-end.
Some key stakeholders, such as Banks, Lenders or some suppliers will also request to see these Management Accounts as part of due diligence processes or to assess the financial health of the company. Some Business owners will also find these useful to make decisions for their business, depending on how timely the production of these accounts are and how accurate the data is. What various stakeholders need will be dictated by the industry, size and complexity of the business, so for some company’s there is little need to go beyond this stage of financial analysis and work with the template reports produced by their accountants using existing basic financial data is sufficient for their needs.
It is also important to consider the technology angle in terms of what is produced. In my experience, most management accounts produced in house or by an accounting practice are produced in excel. The power of excel is that it is extremely flexible, and a skilled user will be able to automate the production of these reports to a reasonable level. Most accounting software providers will have built some mechanism to extract data to excel efficiently and in a structured table which can then be linked and represented across a spreadsheet. The slight issue is that excel has many purposes, but it is perhaps not the prettiest way to present this data and this approach can also create version control issues. Some Accounting Practices have made efforts to use reporting tool providers (e.g. Futrli, Spotlight, Fathom) which will offer a reasonably standardised set of financial reports and perhaps a cashflow forecast automatically based on the data contained in the accounting software, but uptake of these systems is lower than that of the many cloud accounting software providers. There are various reasons for this and I have outlined some potential ones below.
- If the accountant charges for bespoke accounts, to then use a reporting tool which automates this process might negatively impact their fees. Also, for Board meetings (rightly or wrongly) people still like to distribute printed reports and the majority of users have not fully accepted the premise of seeing reports on a computer screen as opposed to on paper. This will reduce the desire and usefulness of an online reporting tool.
- There will be different requirements depending on the sector and/or industry a business operates in. An off the shelf reporting tool is unlikely to go into high levels of specific and business critical data. This could include reconciliations, product performance or various metrics that are likely to be perceived as more valuable to the business owner than a pure sales total for a period of time.
- Configuring and tailoring these tools to get them to a position where you have a template you can use across your accounting practice clients with budgets etc. input takes a reasonable amount of time investment by the accounting practice to deliver something presentable. This will also be in addition to performing its normal business practices so can be a stretch on existing resources.
- After a template is produced it needs to be maintained, understood, tweaked and the business owner needs to see sufficient value in the final product to be willing to log in on a regular basis and engage with the product. This relies on the data also being updated regularly to maximise the value of having access to real time data. As Accounting practices work across multiple clients, they may be working across a large portfolio over the course of a month. It might be unlikely a business owner will see value enough to pay a subscription to access a piece of software only once a month. To remedy this accounting practices would need to be processing their data on a weekly basis as a minimum, which is a reasonably large structural change in the bookkeeping process.
- If an accounting practice does want to create more specific data through BI tools this requires a more specialised and therefore expensive skillset. You also have to consider the commercial basis of setting up this kind of service and its scalability as it is likely to require multiple API integrations into a range of systems.
As such, producing management accounts used to be a reasonably standard process that was largely graded by the strength of someone’s Excel skills. In modern times this has changed and is a much more complicated area. As such over the next few weeks I am going to produce further blogs around this area to try and delve further into all things reporting, Management Accounts, BI and Analytics. The goal is to understand what the market actually wants from this process. Any opinions/comments/insights are also welcome!