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What Should Management Receive From the Accounts Team Every Month?
Monthly accounts should do more than produce a profit figure. Management needs a clear view of performance, cash, receivables, payables and the issues that still need attention.
If management receives a profit and loss account once in a while, that does not necessarily mean it has good financial visibility.
The same applies to receiving a trial balance or a long spreadsheet full of ledger balances.
The real question is simpler:
After looking at the monthly accounts, does management understand what is happening in the business financially?
What should be included will depend on the size and nature of the business, but there are a few things I would normally expect a useful monthly accounting process to make visible.
1. Profit and loss for the period
This is the obvious starting point.
Revenue, direct costs, operating expenses and profitability should be visible for the relevant month and year-to-date period.
But the report becomes more useful when management can also understand significant movements.
If an expense has suddenly increased, or a margin has changed materially, the number should lead to a question rather than simply sit inside a report.
2. The balance sheet
The balance sheet is sometimes treated as something that matters mainly at year-end.
I think that is a mistake.
A business can report a healthy profit while simultaneously building up receivables, increasing debt, carrying unusual balances or facing pressure on cash.
The balance sheet helps show where the money in the business is actually sitting and how the business is being funded.
3. Cash and bank position
Management should know more than the balance visible in the banking app.
The accounting records should provide a reasonably reconciled view of cash and bank balances.
Depending on the business, it may also be useful to understand upcoming material payments or expected collections.
This is where accounting begins to connect with actual business decisions.
4. Receivables
A total debtor figure tells only part of the story.
Management should be able to see:
- how much is outstanding;
- which customers account for material balances;
- how long amounts have been pending; and
- whether anything requires follow-up or investigation.
A business can grow revenue and still create a cash problem if collections do not keep pace.
5. Payables
Creditors deserve similar attention.
What is due?
What is overdue?
Are important supplier balances properly recorded?
Are there old balances that do not appear to be moving?
Understanding creditors helps both cash planning and the quality of the underlying accounting records.
6. Tax and compliance-related balances
Where relevant, management should have confidence that accounting information and recurring tax/compliance records are not being maintained as completely separate worlds.
Differences should be identified and understood rather than left for a year-end clean-up.
7. Pending and unresolved accounting items
This is one of the most useful things an accounts function can show management.
Not every issue needs to be resolved immediately.
But important unresolved matters should be visible.
For example:
- an unidentified receipt;
- a balance awaiting confirmation;
- a reconciliation difference under review;
- documentation still pending;
- an accounting treatment requiring clarification.
The purpose is not to create a huge exception report.
It is to prevent important items from disappearing into the books simply because everybody assumes somebody else is dealing with them.
The report does not need to be complicated
A growing business does not automatically need a 40-page monthly MIS.
Sometimes a much shorter reporting pack, produced consistently and supported by properly reconciled accounts, is far more useful.
The right question is not:
How many reports are we producing?
It is:
Can management see the financial position clearly enough to ask the right questions and make decisions?
That is what monthly accounts should ultimately help achieve.
If you’re unsure how controlled the underlying accounting process is before management reporting begins, the Business Accounting Health Check is a useful starting point.