How to keep in control with management information
March 15, 2011
Consistently updated management information is crucial to maintaining and improving business performance. Damian Walmsley explains why.
You wouldn’t drive a long distance in your car without regularly checking your dashboard instruments. What if you were running low on fuel at the half-way point? Or your engine was overheating?
The same principle applies to using up-to-date management information to ensure your business is running smoothly and efficiently.
Monthly management accounts enable directors to see in black and white how the business is performing and take immediate action where necessary.
If you wait until you receive your annual accounts, you will almost certainly have been overtaken by events. Any issues or themes will continue right up until the annual accounts are completed, sometimes nine months after the year end.
There is a further concern in that the annual accounts will also affect your current year, potentially producing a knock-on effect that could destabilise your ongoing operational performance.
It is important that management information is as specific as possible, including accurate stock figures, depreciation costs, accruals and prepayments and professionally calculated work in progress figures – otherwise the information can be rendered meaningless.
Tax and dividends should also be included in management information because they impact directly on your cash balances and therefore your trading position from one month to the next.
Another major benefit of up-to-date information is that it enables the management team to monitor performance against budget, and make important decisions on a timely basis. Equally importantly, the effectiveness of these decisions will become apparent in the next set of figures, allowing managers to take further action if this becomes necessary.
In addition, there are considerable competitive advantages in being able to quickly identify emerging trends in various areas of the business. For example, falling sales or margins, increasing staff and other costs, rising levels of trade debtors, stock and work in progress, are all important indicators of how a business is performing on a month-to-month basis.
As the economic challenges continue, 13-week cash flow analyses are vital to financial stability and monthly management information can be used to calculate income and costs with consistent accuracy.
Regular management information will also create a favourable impression among bankers and other fund providers, who will be more likely to approve any loans or overdrafts if they are confident that you have a tight rein on your business finances.