Management accounts are not required by law and you don’t have to file them with Companies House or HMRC but they are a set of numbers that give you a true picture of your business. We think management accounts are invaluable for every business.

Most management accounts includes the following:

• Profit and loss account – outlining your revenue, direct costs and expenses. Subtracting all expenditure from income will show your business’ net profit or loss.
• Balance sheet – a financial statement that summarizes a company’s assets, liabilities, sources of finance and shareholder equity at a specific point in time. It provides a snapshot of what the company owns and owes, helping to assess its financial health.
• Cash flow statement – a summary of how much cash is flowing in and out of your business in the period the accounts cover.

But it’s also useful to track a comprehensive set of key performance indicators (KPIs) in the management accounts. The key is to select metrics that align with the type of business you run, the sector, your business model and strategic objectives. It’s also important to track KPIs that look to the future – predictive indicators – as well historical performance – lagging indicators. 

Essential KPIs that may suit your business

Take a look at these suggested metrics and consider whether any suit your business and strategic plans.

Gross margin – The % of revenue minus the cost of goods sold. This shows how efficiently you’re producing products or services, which is useful for making pricing decisions. 

Net profit margin – Net profit as a percentage of revenue. This shows overall profitability minus expenses, and helps track whether the business is becoming more or less efficient.

EBITDA – Earnings before interest, taxes, depreciation, and amortisation. This provides a clearer view of operational performance by removing the impact of financing decisions and accounting methods.

Cash flow from operations – The actual cash generated from your core business activities.

Cash conversion cycle – The time it takes to convert inventory investments back into cash.  

Aged debtors analysis – Break down outstanding customer invoices by age (current, 30-60 days, 60-90 days, 90+ days). This helps identify collection issues early and manage bad debts.

Days inventory outstanding – Average number of days inventory is held before sale. Calculate as: (Average Inventory ÷ Cost of Goods Sold) × 365.

Customer retention rate – Percentage of customers retained over a specific period.

Market share – Your revenue as a percentage of total market revenue (where data is available).

Management accounts best practice  

Remember, KPIs are always best when presented with some context so use them to show trends over time, compare them against budgets and forecasts and benchmark against industry standards where you can. A dashboard – with traffic lights – is a simple way of presenting the information, with more detailed analysis available on request.

Can Hour Hands help?

Not only are we experienced bookkeepers, we’re a dab hand at creating reports and presenting information. If you need help with any aspect of your business from bookkeeping to acting as a virtual PA. Or if you need help with one off tasks such as developing or creating business reports,  organising a team recognition event, or a ‘helping hand’ with a task or three. 

In fact, we can handle most tasks that don’t require your personal time, giving you time to concentrate on something else that you are better skilled at doing or, to allow you time to enjoy doing something that fills you with happiness.

If you think that we can help – or if you’d like to talk about it and find out, do fill in the contact form or give us a call. We’re always on hand and happy to help!