Monthly management accounts?

Bookworm55Bookworm55 Trusted RegularRegistered Posts: 479
Working within <<redacted>> the post holder will provide a high quality management accounting and business support service to internal customers.


The successful candidate will have experience of producing monthly management accounts, budgeting, forecasting and business costings. Good communication and Excel skills are essential. As is the ability to meet strict reporting deadlines and be an effective team player. Service sector experience and use of Agresso accounting system desirable.


Preferably part qualified ACCA/CIMA, qualified AAT or stopped studier.

This is an advert I read on the Cima Myjobs site. I've seen the phrase "monthly management accounts" several times, and I'm never sure exactly what it means. What do you consider to be included within a set of monthly management accounts?

Comments

  • Jon_1984Jon_1984 Well-Known Registered Posts: 186
    Basically a detailed P & L showing all totals of all the entries for the month. This allows management to keep track of income/spend in all areas and monitor performance.

    You may also need to compare spend and income in certain areas to budgets and targets and create reports to the relevent managers to show how they are doing.

    That be my interpretation anyways....
  • sarahwilsonsarahwilson Experienced Mentor Registered Posts: 567
    Our monthly management accounts are a detailed P&L, with graphs showing how sales and purchases are doing compared to this time last year and the year before, an analysis of any areas for concern, ie massive jump in purchases and an explanation of why. We also have a breakdown on how money has been spent in the month in a fancy pie chart. There are also various ratios calculated, a liquidity ratio, debt turn & creditor turn with a comparison to the previous month. I can't think there is anything else in there but the information and graphs generated would probably be specific to each firm, not everyone is going to care how many percent of spend went on heat & light if you are already flagging up areas where expenditure has increased by a lot.
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    Also depends on the specific needs of the company. It may include cash flows if bank balances are critical. Or staff utilisation reports.

    And depends who the mgt accs are for. Board level requires less info, ie more summary or profits. Then more for senior mgt, ie breakdown by departments etc. And more detailed again for general mgt, ie going down to project level.
  • blobbyhblobbyh Font Of All Knowledge Registered Posts: 2,415
    Executive directors and shareholders may also be interested in a 'burn' ratio, namely (our company's definition) how long the company can survive for based on current and virtually certain predicted debtors being realised added to current cash deposits in the bank. Once totalled, this is then divided by gross salaries with employers national insurance added onto it (HMRC are considered the highest priority creditor). What priority creditors are included in the second figure is up to each company to decide but rent and materials should also be included if vital to keep the bare essentials of the business running: luxuries or any other non-necessities are not included.

    For a quick example, assuming a first figure of £300k and a second figure of £50k this will give a burn of 6 months if no more sales were to be achieved beyond the current known ones. If the burn falls alarmingly month on month, emergency action would need to be considered to save the company, including making non-crucial staff redundant (including even the highest non-revenue generating salary earners), drastically cutting costs to the core and possibly reneging on existing fixed term credit contracts such as advertising or car lease contracts. In other words, reduce costs to increase the burn.
  • lou123lou123 Feels At Home Registered Posts: 53
    Thanks blobbyh that's really interesting, I've never heard that term before. (Apart from Jane Fonda exercise videos but now I'm showing my age!)

    lou123
  • ToffeemadblueToffeemadblue Well-Known Registered Posts: 102
    The managemnt accounts myself and my colleague produce start with a P&L and BS including accruals, prepayments (and stock adjustments which are critical to measure a wholesalers performance). The major management information (and value) comes form comparing actual to budget and using varience analysis and updated y/e prognosis to provide a snapshot of performance to target which highlights threats and opportunities.
    As other posters say the kind of management accounts provided will vary widely from business to business.
  • Raging PineapplesRaging Pineapples Well-Known Registered Posts: 110
    Hi Blobs!

    Just a query on that Burn ratio thing, if I can just work an example of that (it could be very useful to our firm right now):

    WORKED THEORETICAL EXAMPLE

    300k Total debtors figure
    50k Estimated bad debt figure
    250k Deemed Realisable Debtors
    100k Cash at bank plus reserves
    350k Total funds generatable or available

    24k Monthly staff salaries & ERs NI
    5k Monthly bills
    10k Monthly Payments to Priority Creditors
    39k Bare Bones Monthly Expenditure

    350/39 ~ 9 months burn

    Forget the figures, cos I just plucked 'em from the air, but is that the right way to go about it?
  • oakleyoakley Feels At Home Registered Posts: 73
    The 'burn ratio' takes no account of new sales, redundancies would affect the burn ratio, possibly significantly if you are making an older long term employee redundant, I personally would stick to the good old fashioned forecast cash flow statement.
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    oakley wrote: »
    The 'burn ratio' takes no account of new sales

    That's exactly the point.

    How long have you got left if, for example, some catastrophe meant your product is suddenly worthless/obselete/illegal(?).

    Many businesses use a similar ratio to manage their cash balance in the current account. e.g. enough for 3 months burn.
  • lrhemlrhem New Member Registered Posts: 9
    The Monthly Management Reports I produce for the Directors consist of;

    Variance Report
    Prior Year Report
    Profit & Loss Report (attached to)
    Balance Sheet
    Trial Balance
    Trade Debtors Report
    Trade Creditors Report
    Cashflow Report (excel)

    These are produced on a monthly basis and issued in a pack to each Director. We then meet and review (otherwise I think they would just try and file them!). There are lots of other excel sheets and graphs but these are useful as a visual aid for those who dont understand accounts fully but these are not included in the Monthly reports issued to Management.

    I produce these using Sage Line 50 which makes the job simple.

    The above are required by our Company but Management in other Companies may request different things.
  • blobbyhblobbyh Font Of All Knowledge Registered Posts: 2,415
    Cashflow forecasts still require varying degrees of explanation/detail to non-accountants whereas a burn figure of say 3 months can be understood by almost everyone: as it decreases month on month, it tells interested parties that unnecessary costs must be dumped urgently. A burn figure of less than 5 will probably mean action needs to be taken immediately since there will be a delayed effect of any harsh action and it may not begin to recover for several more months. Only taking action when you've reached 3 or 2 may mean you're acting too late.

    As for redundacies, the burn can help when deciding who to make redundant with those less than two years service - therefore not entitled to company redundancy pay - most vulnerable as there will be no extra staff costs other than notice pay.

    And yes Chris, that's pretty much it. As your burn falls, you pay only the debts that are paramount to keep you going, minimum staff, core materials, rent. Who cares if those luxury company car or water cooler leases last for another 18 months: dump them now and sort it out later. If you don't, there may not be a company to save.
  • oakleyoakley Feels At Home Registered Posts: 73
    Burn ratios were created by online and tech companies with little or no current sales, the value was in future sales if the product was successfull. If your product became worthless you would want to shut down straight away to mitigate any furter losses, I am also sure this is not the norm for most companies.

    Redunancies : employees are not made redundant, their posts are, choosing employees only with less than 2 yrs service will lead to legal issues, no doubt. Also many companies may not have the opportunity for this as they will have a lot of long serving employees so have no chioce.

    Leases : in todays climate stopping a lease or trying to pay up early is generally a non starter, lease companies are no longer intersted in finishing leases early as this affects their medium term cash flow with very little new business, they will ask for an early termination charge that is almost equal to the lease costs yet to pay, non payment will lead to legal recovery of debt.

    There are better ways to try and reduce costs, granted any discretionary spend will be stopped, employees taking non paid sabaticals, 15% pay reductions short term, 5% reduction to suppliers for all purchases, these are all viable ways and help support cash flow.

    You are also presuming that all companies have 5 months of cash cover in their accounts, again this is probably unreasonable given the current climate.
  • blobbyhblobbyh Font Of All Knowledge Registered Posts: 2,415
    Oakley, we're in the recruitment business so twelve months ago we were comparable to IT companies, hence adopting a burn method. The owner wanted a simple "how long?" figure and the burn quickly gave it to him; if he wanted back-up info, this could also be given to him. We're also talking last resort actions, not first.

    Redundancies: avoiding paying staff costs beyond their notice period is the sole purpose. Find a balance between losing the staff that will cost you the least while saving you the most - business has downturned so staff numbers cannot be maintained at previous levels. We're assuming a company has done everything else you mention but will still crash if it doesn't get hard. It's a fact of life that parts will have to be sacrificed to protect the whole.

    Leases; how can they recover money in twelve months time if the business went pop six months previously? You're desperately keeping yourself in business not the car lease company and obviously good powers of negotiation ref any potential cancellation charges will be required.

    We have six months burn after adopting drastic measures twelve months ago while many of our competitiors have gone. You may not like the burn principle but ultimately it's just another management accounting theory that worked for us.
  • oakleyoakley Feels At Home Registered Posts: 73
    I was merely pointing out that burn ratios are not generally used as they do not take account of future sales, you have done a good job in suggesting you are using them as you are having to take drastic action due to having no or very little sales and so are interested in how long the business has funding for.

    If your business is not in the same situation, ie has future sales orders cover or sales are as in line with historical trend, then a burn ratio would not be something Iwould be interested in seeing.

    As for dropping suppliers, this also works very well short tem but does nothing for future relations IF your business recovers, I was merely suggesting that talking to suppliers would have a better effect.

    Our sales were down 85% and we successfully implemented all the above savings as well as sending our staff on secondment with local companies to avoid redundancies, 12mths on and we are now bringing everyone back due to our customer demand.
  • Bookworm55Bookworm55 Trusted Regular Registered Posts: 479
    Thanks for the replies everyone, I think I have an idea now. A large part of it seems to be putting the detail back in that a P&L for reporting purposes hides in cost of sales, administration and distribution. So really it depends on the needs of the individual company and/or division as to what would be appropriate. Especially as to what's going to be significant to them. For instance I can see trade debtors being really important for a lot of companies, but for someone who deals mainly in cash sales, not so much.

    I'm really not sure what to make of the burn ratio thing. When I read Robert's post, I thought the point was 'how long would the company survive if we made no new sales from today'. I thought that taking no account of future sales was the point, but perhaps I misunderstood?

    The point of this thread was that I'd have a good idea of what a 'typical' company might do, so if I'm asked about it in an interview, or even to do one in my first week, I can talk about what generally would be used and enquire what specifically this company would want instead/in addition.

    Jamie
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