How to analyse management accounts

When it comes to management accounts, it’s all about measuring profitability. For this report to be effective, you need to establish what you want to measure, how often and what outcomes you would like from the data. This can be changed as your business grows, but you will want to make sure that all the data is clear and actionable when presented to your internal board.

What will you analyse?

• What are the current profit margins for your business?
• How does it compare to how you were doing last month or year?
• How does your performance compare with competitors?
• Are there any adaptations that could be made to make your business more profitable?
• A strategic investment or expansion, or perhaps a review of how your processes and spending could be more cost-effective?

Establish KPIs

Key Performance Indicators, or KPIs as they’re more commonly known, are used to track how a performance metric is measuring up to desired outcomes. In business terms, this can be attached to activity levels and output and how your business generates revenue.

Establishing KPIs early on means you can track how your business is performing month-on-month, each quarter and year-on-year. You can identify trends and peaks and dips in performance that may indicate a change is required.

You can have multiple KPIs. The obvious one is revenue, but there may be others that you want to review too, such as free cash flow and gross margin percentage. In fact, the latter is a more effective way to identify the profitability of your business. This is because it shows the amount of revenue left once all overhead costs have been deducted.

If you need help creating and understanding these reports, the specialist management accountants at Ratiobox can help. Book your initial consultation with us today.