Running a business:
Effective management information
The presentation of the management accounts is important as it helps you to understand the accounts. If the management accounts are very detailed, you may also want a summary of the main figures. Not everyone is good with numbers, and some managers may prefer to see the results presented in, for example, a graphical format. You should also consider analysing the core data to make it more meaningful.
To review profitability, for example, you could consider:
- Gross profit margin, ie gross profit divided by turnover expressed as a percentage
- Net profit margin ie net profit (after operating expenses) divided by turnover expressed as a percentage
- An analysis of the profitability of the business, for example by department or product type.
To consider sales, debtors and credit control you may want to review:
- The size of order book compared with monthly turnover
- Debtor days (ie debtors divided by gross turnover times 365)
- Value of outstanding debts more than 60 days old.
In order to assess your business performance, it is helpful to compare the results with other figures, such as:
- the month's results compared with those of previous months
- the results of the month or year to date compared with budget
- the results of the month or year to date compared with the previous year.
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Where next?
Within Financial information…- Preparing management accounts
- Budgets
- Why you need financial statements
- Understanding your financial statements
Within Running a business
General…
