Most owner-managed businesses have management accounts. Far fewer have management accounts that are actually useful. The difference is not technical. Good management accounts are designed around the decisions the business needs to make. Many however are designed around what the accounting system produces by default. I’ve seen this first hand!
What the structure should reflect
The starting point is revenue however not as a single number. Revenues should be visible by segment: by product or service line, by customer type, by channel, or by geography or the most relevant for how the business is actually managed. A single top-line revenue figure tells you very little about where the business is performing and where it is not.
Below revenue, gross margin should be visible and consistent in how it is calculated. The cost lines that sit above the gross margin line for example the direct costs of delivering the product or service should be clearly separated from administrative overheads. This distinction is often handled inconsistently, which means the gross margin figure moves for accounting reasons rather than commercial ones.
The sections that most management accounts omit
A cash flow statement and a forward-looking cash projection are rarely included in standard management account packs but are essential for any business managing cash actively. The P&L tells you whether you are making money. The cash flow tells you whether you can keep going and both matter.
A brief narrative commentary, not a description of the numbers but an interpretation of them is the section that most businesses do not have and most need. What happened this month? What changed? What needs attention? From my perspective explaining the what is easier than explaining why its happening. The why is often the valuable insights a business owner needs. A few clear sentences from someone who has read the accounts with commercial awareness are worth more than any number of additional tables.
The format matters as much as the content
Management accounts that are difficult to read do not get read. The format should be consistent month to month, the same structure, the same categorisation, the same level of detail so that trends are visible across periods. Inconsistency in format is one of the most common findings when a business prepares for sale, and one of the most avoidable.
At Factr, management accounts are built around each client's specific business and reviewed monthly with a narrative that tells the owner what the numbers are actually saying. Not filed and forgotten we want them to be used to enhance decision making!