We believe that having a thorough understanding of your organisations financial situation is essential in enabling you to make good quality decisions. Yet in our experience it is not uncommon to come across voluntary and community organisations that don’t produce regular management accounts.
We have a few simple principles that we believe are important in achieving good quality management accounts:
1) Less is more – More often than not we find that some organisations produce half a dozen financial reports for the management team and board. These reports are often too detailed and in some cases result in information overload for those reading them. We believe that good management accounts should focus on the high level information that is going to enable good decision making.
2) Timing is of the essence – In order for management accounts to add value, it is essential that they are hot off the press. It is a well known fact that in many cases the older information becomes, the less useful it becomes in influencing future decisions.
3) Think performance and position – There is an important reason why year end accounts include a balance sheet and a profit / loss account. A balance sheet provides a snapshot in time of an organisation’s assets, liabilities and reserves. Whereas the profit/loss account measures financial performance, the two go hand in hand in terms of answering the important questions relating to finance and so we believe that they need to be treated as equals.
4) Words and numbers should work together – Professionals working in finance will often produce high quality detailed reports. However, for the average person who doesn’t have a qualification in accountancy such reports can be intimidating and in some cases meaningless. For this reason we think it is essential for any set of management accounts to be presented with an accompanying commentary to help interpret the numbers.