VFD Archives – Debbie Bailey

Management Reporting - What is it and do you need it?

As a limited company you know that you must file a set of accounts every year, it is a statutory requirement and something that doesn’t seem to provide you much value. You cannot make proactive quick decisions based on historic data that is now probably out of date.

Yet a set of accounts can provide valuable information, allowing you to make good decisions based on current data, this is why large companies employ management accountants to work inside the business. These large companies will have up-to-date accounts every month, they will be able to spot any potential issues and react quickly to resolve them.

Improving your businesses financial efficiency requires a clear overview of your key numbers, so you can track your performance and drive improvements.

So, what are management accounts?

Monthly management accounts are a snapshot of the financial health of your business.

It is good practice to get into if you want to grow sustainably because you can plan based on real numbers and are equipped with the facts if you need to change course.

The information included in a set of management accounts can vary as it depends on the needs of the business and it’s stakeholders but generally, they include:

1) A profit and loss for the current year and a forecast for the next 6- 12 months.

2) A Balance sheet and a forecast for the next 6 – 12 months

3) Both of these will have comments explaining key numbers and possibly a variance to forecast or budget.

4) A cash flow statement and a forecast for the next 6 – 12 months

5) KPI (Key performance indicators) which are relevant to your company.

6) Risks and opportunities which may impact the above forecasts and what you can do to mitigate those risks?

7) Trends – What trends can you see in the numbers, how do these compare to competitors, is there any external factors impacting the numbers.

6) Insights – So what? How can we improve the position above? What drivers do you have control over and how can you use them to change the forecast outcome?

The purpose of management accounts is not to provide a whole load of extra numbers and data which really doesn’t make any sense and doesn’t help you to support the business. The numbers provide the data but the key part is understanding what those numbers mean to your business and what you can do to impact them.

Smaller companies they may not be able to afford a full-time finance expert, but they can still benefit from this service with a part-time or outsourced advisor. Below are the benefits available from having regular management accounts.

1) Helps to control costs: Month on month data will enable you to spot trends and anomalies. If one particular month stands out, you can dig down into the numbers and understand why. Some businesses continue to pay for items they longer use as they do not regularly review their costs.

2) Spot potential problems: Is the debtor balance (amounts receivable) increasing without a corresponding increase in sales? If so, then this gives you a signal to look into unpaid invoices. Some management accounts include a review of unpaid invoices.

3) Compare budgets and forecasts: This will help to understand if your business is moving in the direction you wanted it to. Are sales picking up as expected, if not, why?

4) Understand the profitability of products/services: Overall, the business may be profitable, but wouldn’t it be useful to know if you had an unprofitable product or a high performing product that was generating most of your profit. This will help you to make decisions on what to focus on.

5) Helps with financing: When seeking external financing the lender will often request a business plan along with current accounts and forecast data. This will greatly improve the businesses change of securing funding. It also provides the shareholders with reassurance that they can afford the finance repayments.

6) Spot opportunities: Management accounts may highlight an excess of cash above and beyond the buffer you like to maintain. This could provide the shareholders will confidence in making that next investment.

7) Cash Planning: Even though the business bank account may look healthy it is important to understand future cash commitments. Within the bank you will have cash set aside for Corporation Tax, VAT, supplier payments, payroll, stock etc which can cloud your understanding of the cash position. Forecasting will enable the business to see those payments going out and understand if there is enough cash to sustain the business or make those desired purchases.

8) Aids risk management: By understanding what risks and opportunities can impact the businesses future, the shareholders can make decisions to mitigate those risks or have plans in place if those risks materialise.

9) Tax Planning and Dividend Payments: When up to date information is available, a director/owner can plan with greater confidence when remuneration can be taken. Dividends can only be taken when a company has distributable reserves, so for less established or less profitable companies this will need careful monitoring, to ensure too many dividends are not taken through the year.

10) Detection of Fraud: Regular accounts review will increase the possibility of detecting fraud. If long periods pass by without a financial review the wrong doings will remain hidden and it may become more difficult to uncover.

11) Helps to identify seasonal fluctuations: It is important to understand and plan for seasonal fluctuations and align income and expenses as much as possible. Some expenses will continue even during a low season; therefore, the business needs to prepare and have cash reserves for this period.

Management accounts put you in the driving seat of your business and mean you are no longer flying by the seat of you pants and relying on chance.

If you’re looking to get in real control of your financial destiny, we’ll work with you to set up a management pack that puts you firmly in the driving seat.

Talk to us about setting up management reporting

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/

2. Download our free guide on “stopping your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/

3. Download our free Coronavirus support guide: https://debbiebaileymoney.co.uk//coronavirussupport/

4. Connect with me on social media:

https://www.linkedin.com/in/southbourneaccountancy/

https://www.facebook.com/debbie.hancockSA

Virtual Finance Director, VFD, outsourced advisor, management accountant, finance business partner – there are so many names and descriptions to contend with in the finance world, so what is a Virtual Finance Director?

Smaller businesses often face the same challenges as larger businesses, but they cannot always afford a full-time Finance Director. A Virtual Finance Director is a business advisor, a sounding board and provides financial insight at a smaller cost than a Full-time FD.

Having someone with financial expertise, together with commercial and business experience, can be vital to the success of your business. Finance Directors are vital for all types of businesses and unlike an accountant, who focuses on the past, they look to the future. They assess the past and financial performance of a business but with the major bonus of looking forward and using the information to plan for the future.

In this short blog we will outline the benefits of having a Virtual Finance Director:

Saves money

A Finance director is sometimes considered a luxury that smaller business simply cannot afford or justify, however would really benefit from. A Virtual FD solves these issues as they work part-time and do not have the additional employee costs such as benefits, pension and recruitment fees!

A new way of looking at things

A Virtual FD can provide an outsider’s perspective that can breathe new life into your business, they can provide a unique perspective and be a sounding board for ideas. Sometimes employees may be too close to the business and not see the wider picture.

Commerical insight

Having worked in and with businesses we are able to provide commercial knowledge that other accountants may not be able to provide, if they haven’t worked within a commercial business.

Allow you to work on the business not in the business

Do you find yourself worrying about the small things, the day-to-day running of the business, looking at reconciliations or chasing invoices? You should be concentrating on the wider business strategy; you should have the freedom to have a day off if you want. A VFD will give you the time and freedom to do this. You can concentrate on your area of expertise and your reasons for starting the business.

Process and systems

It is important to have right systems in place to support business growth; you cannot successfully continue to grow if you do not have a handle of your numbers. By having the right systems in place, you will be able to have a real time view of your financials and we will be able to provide forecasts, cashflow and management accounts. This will enable you to see the bigger picture and make smarter decisions for the future of your business.

Just having Xero in place will not provide all the answers, are you using it correctly and maximising its benefits. Do you have the right apps connected to really benefit your business?

Cashflow

Identify any shortages and excesses so you can invest and expand at the right time.

Financing advice

Sometimes business require extra capital investment and it is important to identify best type of finance dependent on your business’s requirements. That is why it is important to work with a broker to get the most suitable deal; most businesses will simply speak to their bank which may not provide the best rates or most suitable finance options.

Signs that your business is ready for a Virtual Finance Director

Growth

Your business is growing, customers numbers and increasing steadily but do you have the right foundations for growth? At the beginning it makes financial sense to do everything yourself but as the business grows, things start to slip through the net, now is the time to seek outside help.

Cashflow

Do you know your business’ cash position, or do you simply check the bank each morning (ok each week) with a squint and hope it’s positive? Most businesses fail due to poor cash management, so now is the time to concentrate on your cash position. You will need to look at the future ups and downs so you can make smart decisions with regards to your business.

Not getting the right financial information

Can you trust your data? You may have an accounting system in place but is it providing accurate, up-to-date information that you can make sound business decisions on? Are you able to use the data for scenario planning (what-if analysis), to help you decide if to take on that extra member of staff?

Future plans

Do you have a business plan or is in hidden away in a drawer never to be seen again? A VFD will help you to make the most of a business, looking at real numbers which you can track you process against. A business plan will give you focus and direction for the business.

Too much time spent working in the business not on the business

Strong processes and controls, getting the right systems in place, reducing admin, giving peace of mind, freeing you up to work on the business strategy

Key aspects of the role:

Handling of all the usual FD duties but work remotely and on a part-time basis
Cashflow management including a rolling cash flow forecast
Preparation of an annual budget
Attendance at board meetings
Preparation of monthly management accounts and analysis
Discussion of business performance and offer financial insight

A Virtual Finance Director is particularly suited to forward-thinking start-ups and established businesses where financial expertise is the best way to assist its continued growth.

Is the time right you for to get a VFD and get focussed on your business? Book a discovery call today and find out how Southbourne Accountancy & Business Services can help you. Our service ranges from monthly or quarterly board views to management reports, our aim is to match the level of support with your business needs. This support can be flexed as an when needed.