Xero Management Accounts

Xero management report accountants

“What gets measured gets managed” is a mantra that many of us use – especially when running a business. But what exactly does it mean? As a business owner it is vital that you have proper measurement tools and reporting in place, in order to understand where you are now and where you are heading.

At Spotlight Accounting we offer a Management Accounts service that aids businesses in identifying whether they are on track to achieve their goals – because having accurate and up to date information to base your decisions on is key!

What are management accounts?

Management accounts are a regular report of the financial position and performance of a business. They show how much money is being made, as well as if it has the ability to pay its debts. Typically they are produced monthly or quarterly. The purpose of these reports are so that business owners can track whether they are profitable and can compare it to plan.

Why do you need management accounts?

In short, you need management accounts to make sure that your business is on track. Regular reporting provides up to date information about how your business is performing and enables you to spot any potential issues straight away so that action can be taken promptly.

Business owners have limited time resources, so having management accounts to hand, forces an owner to stop and take stock .

Management accounts give better control and visibility over the business, so that you can see what your bank balance is, how much money you are owed and in turn how much money you owe. It can also help business owners understand their tax obligations so that there are no nasty surprises.

The most common benefit that we hear from our clients is that their management accountants have helped them to improve their cash flow. Regular reports will highlight late paying debts and can avoid them getting to the point where they are not recoverable.

Cost control is another reason why small businesses should have management accounts. For example, you could be investing in a £1,000 a month cost for marketing activity, which is predicted to achieve additional sales of £5,000 a month.

Regular management accounts would be able to monitor the sales growth and if the marketing cost was not delivering, allow you to either stop the campaign or tweak it so that it delivers the additional sales. Without regularly looking at financial information it could be 18 months before this was spotted, potentially incurring unnecessary costs of £18,000.

Having regular financial information can also accelerate your business growth, but in order to fully get a grip on your finances you need to know where you are on the plan.

For example if a target is to achieve sales growth of £250,000 to meet the profits that the business owner needs to fund their lifestyle.

Without regular reporting the owners will not know:

1. If the target will be met
2. The impact of this target not being met
3. If there will be enough in the bank to pay the financial commitments
4. If the bank balance will be enough to pay the owner’s salary and dividend
5. If the target is exceeded if there are any tax planning opportunities for the surplus funds

What is included in management accounts?

Whatever cloud based software you choose, all management account reports should show you the following:

• Profit and loss account: A profit and loss account shows the business performance over the period. It will show all income and costs ideally measured against the forecast so that any discrepancies are identified.
• Balance sheet: A balance sheet shows all the assets the business owns, where the working capital is i.e money tied up in stock and debtors and what money the business owes.
• Debtors report: Debtors report shows you all the money the business is owed and when payments are due.
• Creditors report: A creditors report shows all the invoices the business has not yet paid.

More detailed accounts will have a cash flow statement showing the predicted receipts and payments in the bank over the next quarter, as well as the key performance indicators (KPI’s) of the business.

KPI’s give a high level summary of the business performance and are crucial in spotting trends and potential issues. A common KPI is debtor days i.e the amount of time customers are taking to pay invoices on average. If this went from 30 to 60 days, then this would highlight a potential cash flow problem as the cash balance would be a lot lower due to unpaid bills.

What is management reporting?

Management reporting consists of a set of reports that business owners and managers use in order to run the business and make decisions. This will include financial and non financial data.

Larger businesses will have a more detailed report that is normally prepared by a management accountant. They will also have reports that are sent weekly, monthly and quarterly, so that senior staff can understand the business finances and make decisions based on actual data.

How does Xero management reports work?

Xero is a cloud based accounting software programme that can manage the ins and outs of your business finances in real time.

Xero reports can be generated and customised straight from the financial information within Xero accounting. Using Xero management reports ensures that information is delivered promptly to business owners.

For more complex reporting requirements such as invoicing, payments, inventory and even CRM, an app that bolts onto Xero can be used.

At Spotlight Accounting we can share and discuss reports and metrics with you, drill down into the details and even help you measure specific KPIs. We are not only Xero experts but we’re also partners and Xero migration specialists, so can provide you with free software and training.