30/11/10

By David Bloom, co-founder and CEO, fd unlimited

As soon as possible after the month closes, you should expect to see the Management Accounts for that month. The longer you leave it, the more stale the numbers become. You should not conduct the monthly Board Meeting without the Management Accounts so this too is dependent upon timely completion of the financials.

It may sound a little trite but the Management Accounts should only contain what the Board or Leadership Team really needs to see to allow for informed decision making. It is a waste of time, especially for your Finance Team to produce reams of analysis when so often the bulk of what you need to see for an SME (Small and Medium Enterprises) can fit on one page.

Guidance should be given by the Board on what they want to see next time and to continually refine the information until it provides exactly what is required.

The Management Accounts should fit into one Excel Workbook, with a tab for each page. The tabs should all be formatted in such a way that they copy paste straight into the board presentation pack. Every page should be numbered, dated, and marked with the company name and ‘Strictly Confidential’ in the header or footer. Much time is wasted by finance teams reformatting numbers and tables to fit a different board template, especially when the accounts are just an element of a bigger board pack produced by the CEO’s assistant.

Although every company is different here are the standard pages or tabs I would expect to see produced by my Finance Team in any organisation.

1. Cover sheet: clearly stating the name of the company and the period in question.

2. Executive Summary: on one page pull together all the key items from the rest of the pack

• Summary narrative — one liners on the main highlights and lowlights in the month;

• Actual Turnover, Gross Margin, Overhead, and Operating Profit for the last 3 months, broken out by product or service lines with % growth to give a view to what is performing well or not;

• Aged Debtors – £ and % — a summary of how the ageing looks. A high % of old debt is cause for concern;
• Headcount — A summary of numbers by department for the last 3 months to see at a glance movement in heads;

• Cash at bank — show the bank balance for the last 3 months and include any overdraft facility as headroom;

• Capex — any material asset purchases in the period;

• KPI’s for the last 3 months — show the breakeven turnover, the burn or cash generation rate, sales per head, overhead per head, and if you’re losing money your ‘cash zero month’ if— this is the cash balance divided by the monthly burn to tell you how many months of cash you have left

• For all of the above show the forecast and variance so it’s easy to see if you’re on track.

3. P&L Forecast v Actual: put your p&l headings down the centre of the page and break them out into the right level of detail to make sure the information is meaningful to the reader. Too little or too much detail will mean important movements or trends will be missed. On the left side of the narrative show actual against forecast for the month completed and compare this if relevant to the same month last year. On the right side of the narrative repeat for the Year to Date cumulative numbers actual against forecast and show the full year forecast which will be the year to date actual plus the forecast for the rest of the year. The forecast should be revised at least quarterly;

4. P/rended: this is simply the same p&l as in 3 above but monthlies put side by side so you can see how the different lines of revenue and cost are trending. This is helpful to spot any obvious errors or concerns. For example rent should not change month to month unless you are moving office. It’s good to keep the history from inception here all in one place as it is often asked for. One line commentary should be given against material movements in the month;

5. Budget: Again the same p&l format broken out by month or by quarter for the full year. Budgets typically go stale soon after they are produced, especially for a dynamic SME but it’s a good reference point on what was decided and may help to refine future budgeting exercises when the Board sees how far off they were in their planning;

6. Balance Sheet: The monthly balance sheet should be presented with the key headings you would expect to see — Fixed Assets broken out by asset class; Current Assets broken out by Stock, Debtors, Cash, Prepayments; Current Liabilities broken out by Creditors, Taxes, Accruals, and other liabilities; Debt; Net Assets; Shareholder Funds;

7. Detailed Aged Debtors Listing: a full listing by customer rank sorted by largest oldest debt first of who owes the business money. Commentary for the oldest debt should be provided; and

8. Cash flow forecast: a summary of monies in and out for the next 12 months, 6 months minimum.

The Management Accounts should not be published without sign off from the Finance Director. To review the accounts timely and efficiently I require Management Accounts to be presented with reconciliations for the balance sheet. The Board do not have to see this detail but it is there if they want to and it will show the rigour adopted in preparing the financials.

If you would like a management account template that captures the key elements above please email us at support@financegofer.com or call James Ashley on 0203 008 4495.

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