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What is the ideal monthly management pack?

24th Jun 2006
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Over the past two weeks, AccountingWEB set out to establish what kind of information should appear in monthly management accounts. Here's a summary of the debate so far.

Relevance
"There is no magic pack," said Jon Moulton, chairman of venture capital firm Alchemy Partners. "The first characteristic of a good management reporting system is that it has to be relevant to that business."

And with 40 or more sets of monthly figures to consider, he and his colleagues want to see business-specific measures summarised on a sheet of A4.

Top-level summary
Alastair Harris, responding to Moulton, noted: "Senior management won't read much more than the headline numbers is a message I have heard time and time again over the years. It is also one that many accountants fail to hear."

Christopher Adkins agreed with the one page summary idea, but stressed there should be detail attached to this page to substantiate the numbers.

TSG chairman Graham Wylie confirmed this view. "I just want a top-level view," he said. The basic monthly pack is a barometer rather than a definitive guide, but he does look for trends within the underlying detail. "I look at sales of a particular product to see if sales margins might have a better gross margin in one region than another. That sort of thing that provokes discussions."

Explain the numbers
"It's not the numbers, but the words that matter most," advised AccountingWEB contributing editor Richard Murphy. "The real art of the FD is to turn figures into something other people can understand."

Acknowledging the needs of managers in smaller companies, Murphy expanded on the detailed P&L, cashflow and balance sheet statements that should go into a monthly pack, but urged accountants to zero in on the key performance indicators. And if there are any variances between the budgeted figures and the actutals - explain them, he urged. "If you don't explain the variances, it shows you're not managing them."

Murphy emphasised that the monthly status report should included forward-looking comments from divisional managers and sales forecasts, which are important because they will have the biggest effect on cashflow. The cashflow forecasts themselves are "vital tools", he added, advising accountants to prepare a short-term (90-day) model as well as one for up to 12 months.

Cashflow statement is key
"For any management reporting, a cash flow statement is vital," agreed Ashwin Kara of Ashco Accountants, who was amazed at the number of clients who don't get monthly cashflow statements - yet are strangely unaware of their the cash position.

One client was told of his increasing profits each month, but could not understand why his overdraft continued to increase. Kara provided him with cashflow, P&L and balance sheet statements as well as KPIs - so now he understands that working capital is increasing by a huge amount and that is where all the cash is going.

CIMA: The theoretical view
For theoretical background, we turned to recent CIMA research into divisional and board-level reporting. One of its reports included a menu specifying the contents of a typical executive pack of between 10 and 20 pages:

  • Executive summary with a synopsis of KPIs and identifying all key issues.
  • Action plan specifying corrective actions and contingencies
  • P&L account showing period and cumulative positions against budget - with major variances highlighted.
  • Projected outturn recalculated on the basis of actual performance and action plans.
  • Profiled cash flow summarising actual and projected receipts, payments and balances to year end.
  • Capital programme - Analysis of progress of major capital schemes showing percentage completion, current and projected expenditure, completion cost and timescale.
  • Balance sheet showing working capital position in tabular form or using performance indicators, eg debtor and creditor days.

    There were quips that when accountants and users were focusing on a single page, the academics were expecting 20, but many of the elements identified in CIMA's report matched those raised in the AccountingWEB debate.

    Join the game rather than be a spectator
    IT Zone contributing editor David Carter weighed in with a challenge: "Forgetting for a moment your services to top management, what help do you as an accountant give to your customer-facing staff, to the people who actually do the work?" he asked.

    "Are you the typical accountant who sits out the game on the touchline? Then, after the game is over, you add up the score and say who won? Or do you make a point of getting out there onto the pitch where the action is, getting your hands dirty, part of the team?"

    Carter suggested that company accountants were ideally placed to help line managers extract useful reports from front-office systems rather than producing the after-event reckoning. For example, a daily sales report could help a sales manager identify outstanding orders that might help her to hit the month's sales target.

    But this pro-active role was challenged by industry commentator Dennis Howlett. If there's a situation where you spot that widget A is selling very well and there's a risk of stock running out, what can the FD do about it, he wondered. Probably nothing.

    "Where the FD can play a role is in modelling the impact of shifting supply on profit. Widget A may be a great seller but it's no use if it doesn't contribute to margin. For instance, there's no point in distributing widgets to bad payers. That's a clear operational issue where FDs can have direct impact."

    Interpretation and delivery
    Alastair Harris provided a pithy summary of the debate up to this point: "The common message so far is that the more you get paid, the less detail you require!"

    To put it another way, you should feedback on stuff you manage, so that it can influence future decisions, he suggested.

    But why limit yourself to once monthly management pack, Harris wondered. "There are applications now that can email distribute tailored reports to appropriate recipients, and update intranets, automatically, from a system, and reporting tools that can produce the numbers and graphs, and provide a dynamic what if, slice and dice interface for the user."

    This series is the starting point for further material on AccountingWEB concerning the role and nature of management reporting, and the tools that accountants can use to collect and present that information. Feel free to add your thoughts to the discussion by clicking the Post a Comment below. You will also find related material in the following articles:

  • My ideal monthly management pack: Jon Moulton
  • My ideal monthly management pack: Graham Wylie
  • My ideal monthly management pack: Richard Murphy
  • The ideal monthly management pack: CIMA's view
  • David Carter: Are you a player or a spectator?
  • Why sales reports have to be produced by an accountant
  • Replies (2)

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    avatar
    By roameri
    02nd Dec 2005 15:17

    Robin Gomm's Comment - Ideal for SME manufacturers.
    Is Mr. Gomm using inhouse oftware or is his company selling software.
    We should get some more details to consider using it.
    Cheers!!!
    Jamshed

    Thanks (0)
    avatar
    By Anonymous
    04th Oct 2005 15:21

    Link reports to strategic measures
    The key point to any management information pack is that it "enables effective decision-making". Effective decision making is dependent on sound and rounded information. ie it is NOT just financial, and is NOT purely historic.

    At Genesis Ltd we focus on supporting the development of wider strategy backed up with financial plans. All management information must be aligned to strategic measures, and as concisely as possible.

    So what I would emphasise are two furtther aspects:

    1. Balanced Scorecard measures are key to any worthwhile management/leadership information pack. That means considering the health of a business in 4 dimensions [market and product/financial/people and organisation/process and facilities].

    2. Focussing on the purely financial, it is critical that the pack Not be restricted to LAG indicators of performance, but include LEAD indicators. In my experience THE MOST important measure of all is the SALES ORDER BOOK [sometimes called the Backlog Report]

    This is particularly true of smaller and growing companies, where an early indication of prospective performance and cashflow is vital to allowing composed consistent decision-making in the face of tight finances.

    David Hughes-Hallett MA, ACA
    Business Advisor
    Email: [email protected]

    Thanks (1)