Management accounts

The key to management accounts is not what they look like but what they are for – they are financial information that helps managers and trustees:

• Monitor progress and performance
• Make effective decisions
• Plan for the future

The narrative and analysis is as important as the numbers.

Good management accounts should:

• be accurate and up to date
• be presented clearly – less is more, put the detail in the appendices
• tell a story – this is at least as important as numbers

You can experiment with graphics - but think about the trade-off between the quality and time you take to produce the report

You should know what you want from your reader: decisions, advice, approval – it’s much easier as a reader to know why you are reading something

Too often management accounts are presented as a page of numbers looking backwards at what’s happened so far in the year. They need to be much more than this. There needs to be analysis of why things have happened, and what the significance is for future developments, as well as a forecast of what’s coming up financially (What? So What? Now What?).

Focus on relevant information

Think about the purpose of your management accounts, and the preferences, skills and needs of your users (you don’t need a one size fits all, you can adapt what you produce for different groups). 

While it’s right to check with people what they want to know about and what format they’d like it in – be aware that they might not know until you produce something, and that might make them realise that they wanted something just a little bit different after all. Be patient – think lean and agile.

As a starting point, management accounts often cover:

• summary/highlights
• comparison of actual income and expenditure to date against budget
• forecast income and expenditure to year end compared with budget
• updated cashflow forecast
• details of movements on restricted funds

They often also include a balance sheet, or some details of assets and liabilities like cash and significant debtors and creditors.

It’s a good idea to include some KPIs to give the numbers some context and clearly relate the finances to the performance of the organisation. You’ll know the key things that you need to monitor.

Depending on how you manage your accounts day to day, you can choose whether to report on a receipts and payments or accruals basis, but you need to be consistent and make sure that the users understand the what the figures are based on.

When you have put the numbers together always take time to step back and write a summary.  

Treat management accounts like any reflective process - your summary should highlight the key issues – often significant differences from budget – explain how they arose and assess their implications and whether action needs to be taken. What? So what? Now what?

Key Performance Indicators (KPIs) and metrics

These terms often used interchangeably – but they are not the same thing – all KPIs are metrics, but not all metrics are KPIs.

• Metrics are quantifiable measures used to gauge performance or progress of some aspect of your organisation – for example numbers of calls to a helpline
• KPIs are the most important measures, the vital signs – how you judge your success.

Some may be financial – you need to be liquid to survive - but it is important to include non-financial KPIs in financial reports to ensure context.

The most difficult thing is working out what to measure. It has to relate to strategy and purpose, to be able to be linked (even if through a long string) to being outward looking and supporting the beneficiaries. It is all too easy to get caught up in what's simple to measure like fundraising ratios or administration cost ratios without thinking of the impact on the organisation and its users. 

Reading management accounts

Management accounts should tell you something about your organisation, and if they don’t the issue may not be you!

Think about management accounts as the translation of the organisation’s activity into money – they should reflect what the operational staff are telling you about how your organisation is doing. If staff say things are going well, the finances should be looking strong - probably on budget or better. If they say things are poor, the finances should look off.

Don't lack confidence in your questions – if you don't understand, you are unlikely to be the only one.  If you don't feel comfortable asking questions in a meeting, contact the finance person separately and ask in private or by email. (If you are going to do that as a Trustee – make sure you’ve cleared it with the Director first otherwise it can look as though you are going behind their back).

Points to check on the management accounts

adapted from WYCAS Money Management Booklet - Part 4 Annual and Management Accounts

• Are income and expenditure to date broadly in line with budget to date?
  • Are there any significant differences?
  • If so what is the reason for them and what action needs to be taken on them?
  • Is there a surplus or deficit? How does this compare with the budgeted surplus or deficit?
  • Are there any restricted funds? If so are the balances on restricted funds and the unrestricted funds shown separately?
  • Is there a big funds balance? If so is it being invested wisely?
  • Is the unrestricted funds balance in line with the organisation’s reserves policy?
  • Are there any large amounts owing to the organisation? If so who is chasing them up?
  • Does the organisation owe any large amounts? If so when will they be paid?
  • Are the grants due during the remainder of the year guaranteed?
  • What will be the likely financial outcome at the end of the year?
• Do you want the financial outcome to be different? If so what do you need to do to achieve this?
• Is the organisation on target for its outputs?