AccountingWEB’s management reporting series looks at how forward-looking firms are building KPIs and periodic reports into their business services. John Stokdyk reports.
In recent weeks we have been interviewing and talking to management accountants about how regulatory and technological changes have affected the way they prepare and present financial (and non-financial) data to company owners and managers.
But the same trends are just as relevant for practising accountants. The bulk of many firms work involves preparing accounts and returns for Companies House and HMRC. But what cloud accounting evangelist Richard Messik calls the “audit annuity” is under threat from last year’s threshold increase and European proposals to simplify reporting for micro-entities.
“Clients do not need an audit,” said Messik. “That’s going to make it a bit harder and practitioners will need to find ways to replace it with other services - mostly management accounts, where they can deal with planning issues with real time information, rather than waiting nine months for the final accounts.”
This was very similar to the message from many of the accountancy firms shortlisted for last year’s Practice Excellence Awards. These firms consistently identified outsourced management accounting as a key feature of their success.
Developing accounting processes and key performance indicators (KPIs) for clients gave these firms a way to start conversations that deepened their relationships and strengthened the role they played in guiding strategy at their clients’ companies.
Lessons from Milsted Langdon
No one exemplified this trend more than Milsted Langdon, the 2012 large firm Practice Excellence Award winner. Much of the management reporting work it undertakes is done with Excel-based reporting tools created by in-house BI expert Chris Downing.
He explained: “Accountants don’t always appreciate the purpose of management accounts. There are the accounts where all the i’s are dotted and t’s crossed and everything reconciles, which can take a week or two to produce.
“And there are the accounts that show what’s important to the business: fast results; KPIs; whether the business is hitting its targets; and monthly trends.”
Milsted Langdon and other Practice Excellence Award winners have a very clear idea of their ideal clients. Providing outsourced finance functions doesn’t just increase their fee income - it gives them new insights into clients’ businesses and helps them devise new strategies and services to support their continuing success.
Taking advantage of all that technology has to offer was another common success factor. While clients often like the way web-based software makes bookkeeping easier for them, smart practitioners realise that the shared accounting platform is what really changes the game. It streamlines data extraction when you prepare clients’ accounts, but also makes it easier to offer businesses advice based on numbers they can see in their online accounts and management reports.
“It can be easy to become number-blind, but the accountant should provide commentary about where the business is going,” advised Downing.
“We try to get owners and company managers engaged with the management accounts so they can do it themselves, for example by doing a live pivot on Sage data to get instant results and surface discussion points: how many new customers are they are attracting; and what kind are they getting? Are they one-off sales that don’t come back, or a source of recurring revenue?”
The dashboard challenge
Narrowing management measures down to key metrics and presenting them in real-time dashboards is another route for advisers to enhance their service. A good accountant should be able to help clients identify appropriate indicators to monitor, and help create the displays in which live performance data is presented. Once suitable KPIs are devised and put in place with a client in a particular sector, the same techniques can easily be applied in other client businesses.
KPI dashboards were discussed in a previous article on reporting tools and techniques, but are worth exploring in more detail for what they can add to the practitioner’s portfolio. A good dashboard won’t replace the monthly P&L package, but will highlight the most pertinent elements on a much more timely basis.
Dashboards are more about predictive analysis and data visualisation than showing what happened in the previous period, according to CIMA development and innovation specialist Peter Simons. Dashboards shift the accountant’s emphasis from bookkeeping to planning and decision-making. The object of the exercise, he added, was to pose relevant questions, identify problems, drill down into the source data to find explanations and point the way towards collaborative solutions.
How practitioners can add value
Shifting from static, one-sided reporting habits may be a significant leap for some advisers, according to Smeebi’s Rob Connell. “Their reports will often be something that is presented rather than discussed. Most managers will ignore them.”
Smeebi’s online KPI dashboarding tool often finds its way into organisations via interim FDs. Business advisers could learn a lot from their approach, Connell added: “When an interim FD is brought in, they often want to bring the reporting pack alive and turn it into something more interactive - like the KPI reports you see in large companies.
“They’ll often use Excel and PowerPoint to sit with the owner/founders and talk to them about the figures in their own language. This can be time-consuming: you are reliant on looking at the numbers in a table and need to have the financial knowledge to untangle the terminology and make it relevant.
“Perhaps the new breed of entrepreneurial accountant can get into that. Some of them have looked at how they bill, and may see a way to add value all the time rather than having a minimum charge for statutory accounts.”
Excel still has a role to play
The leap to online KPI dashboards may be a step too far for some accountants who have come to Connell’s entrepreneurial conclusion. But we have heard several times about how our old friend Excel can be called into action for effective management reporting. Spreadsheets are familiar to both the client and the practitioner and can be set up to look in on financial data in almost any way you like, according to Milsted Langdon’s Chris Downing.
“It’s come on in leaps and bounds in recent years,” he explained. “Before Excel 2007 the pivot table wizard was a bit clunky, but that has improved and you can link pivot tables to almost any data source. A pivot table can talk to Sage and let you slice and dice the nominal and financial data any way you like.”
From a basic Excel Table, you can add categories or additional data types and convert it into pivot tables for further analysis. In addition to exploring how pivot tables can help management reporting, Downing also suggested advisers should “understand Subtotals and SUMPRODUCT”.
What’s stopping you?
It’s not just the loss of bread-and-butter audit work that should be encouraging accountants to think about management accounting and KPI work. Clients are crying out for their accountants to be more proactive and to make a bigger contribution to strategic decisions. With their technical, financial and reporting skills, accountants are ideally placed to offer all kinds of business advice based around the packaging and preparation of management information.
But do practitioners have the acumen to combine these skills with an understanding of their clients’ business - and the ability to package the data in digestible formats with appropriate commentary? That is a question we will continue to examine in future articles - and through the comments below.
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AccountingWEB’s interim Editor in Chief has been with the site since 1999 and returned to the editorial hot seat in March 2020 to support the team through the pandemic. When not tending to the needs of AccountingWEB members and geeking out on their technology habits, he devotes much of his time to an oddball collection of stringed instruments...