By Jenna Collyer 
The phrase ‘management accounts’ might start initially sending you off to sleep. But when we tell you that, essentially, they give you all the insights you need into your profitability and performance you might sit up a bit. And when we add that they help you achieve sustainable growth and boost your profits… suddenly they’re pretty exciting, after all.
Most agencies would love to tootle along doing lovely creative work without really thinking too hard about things like strategy and balance sheets. This can work in small start-ups. But once you start to grow, the reality is that you need a careful eye on what’s happening and what’s going to happen, otherwise you can start to stumble. And by stumble, we mean added stress without financial reward, loss of competitiveness and plummeting staff morale.
All easily avoided, however. Making some carefully informed decisions and using data to identify trends, challenges and opportunities will support you through growth and into further growth. Management accounts become your best friend here, acting as your expert advisor and becoming your eyes and ears on all aspects of your agency’s workings.
What are management accounts?
They’re personalised financial reports offering a clear overview of your agency’s performance. You can gain insights into your profitability and cashflow and conduct risk management, usually through comparison graphics and displays.
These monthly reports are the lifeblood of your agency. Using the information they provide, you can make data-driven decisions, measure performance and identify and track key trends. All of which leads to increased efficiency, manageable growth and enhanced profitability.
What do they contain?
All the lovely secrets from your agency. Actually, they’re not secrets, but they might be without the correct reporting. Or they might not all be in one place. Or they might be duplicated in different systems… so you get the picture that bringing all the information into one clear report is pretty much a must.
Your management account report is compiled from profit and loss accounts, balance sheets and cash position. They usually include accounts receivable, accounts payable and any relevant KPIs.
- Profit and loss account: a report that details income and expenses. (For more, read our article on Profit and loss: the agency equation for success.)
- Balance sheet: this includes any assets, liabilities and equity and illustrates the financial position at a fixed point in time.
- Cash position: helps to understand the amount of cash you have at any given time.
- Accounts receivable: the balance owed to your agency.
- Accounts payable: the balance your agency owe
- Relevant KPI reports: enable your agency to review and analyse your key performance indicators to track progress.
Why are management accounts important?
Because they are brilliant for helping you make strategic decisions, as well as track financial performance.
They’re multi-tasking, hardworking and basically loaded with all the information you need for:
Making informed decisions: No more guesswork. You have the right data at your fingertips, helping you to decide whether now is a good time to invest in new software, for example, or launch a new service.
Identifying trends: Spot trends and patterns within financial performance, such as seasonal fluctuations. By using the reports produced from the management accounts you can proactively plan and adjust your strategy accordingly. Measuring performance: Management accounts help agencies to measure their performance against targets they have set that need to be achieved. The accounts can also be used to evaluate whether the agency is on track to achieve these goals or if they need more attention.
Improving efficiency. Detailed insights into your income, expenses and cashflow can highlight any inefficiencies… and help you turn them around.
Enhancing profitability: Whether through reducing costs, boosting revenue – or both.
Achieving sustainable growth: The overview of your agency’s financial health helps you develop achievable goals for scalable growth and efficient performance.
Conducting risk management: Understanding potential financial risks, such as cashflow problems, can help you to mitigate them.
Management accounts really are much more beautiful than their name might suggest. They’re packed with dynamic data, giving you a full monthly MOT on your agency, so you can see the highs, the lows and the in betweens. And using this data to motivate your decision making and shape your strategy means that you’re always one step ahead… which is a good place to be.
