Boost your Profitability by using quality Management Accounts

In our 25 years of experience we often take on clients with issues, often unknown, surrounding their management accounts.

If you’re serious about improving you profitability then naturally you’ll ensure that you receive promptly, every month, the key information, both financial and non financial, that you need to run your business effectively and efficiently.

This isn’t what your accountant gives you in their format or what you’ve inherited. It’s what you and your team or Board have determined that you need. You’ve really got to "own" it otherwise you risk not extracting the most benefit from the potentially precious information.

Some issues are obvious and easy to identify such as just no management accounts or they’re far too late or of poor quality. What tends not to be obvious or even admitted are personal user ‘difficulties’ around the table. These broadly fall into two categories. The first is a simple lack of understanding of what the numbers mean and what action consequently should be taken. The second is in accepting a sub standard form of reporting, perhaps assuming, probably wrongly, that it can’t be changed or that such would be too expensive. 

A sub optimal reporting scenario is a shame but it’s worse than that. It’s potentially costing serious money if management decisions are being delayed or prevented because of the lack of quality MI. The funny thing is that, in our experience, most issues mentioned are pretty straightforward to deal with and are well worth considering. 

Beware - it’s not a good idea to carry on with the same reporting that you inherit without reviewing as to whether or not it’s fit for your purpose. Circumstances may have changed over time so that the reporting needs adjusting but this won’t happen automatically. 

Of course this applies equally to charities where arguably it’s even more important to have the MI and understand it as Trustees are personally responsible. 

One of the most profitable developments in a reporting system is to split the single Profit & Loss report between different parts of the business such as in BookCheck where we report separately on each of Bookkeeping with Management Accounts and Payroll. They’re different businesses with different margins. If they’re mixed together in one, whilst you can still tell the sales performance, you don’t know which is improving its margin profitability and which is not – there’s no way of telling.

Perhaps the most difficult obstacles to overcome is for a user to admit a lack of understanding. To a certain extent that’s down to the service provider checking, asking, hinting or otherwise. But it’s mostly down to the individual getting real. 

Quality Management accounts should be a terrific basis for boosting the profitability and hence value of the business so our advice is - don’t waste the opportunity. 

3 Essentials to grow a Company

Looking back on my time running my own company there are three things that I did consistently. I didn’t realise the importance. I just did it. 

There are five common myths about entrepreneurs:

In Residence at Bristol University, I saw the same three things in companies that were successful. So what is the magic? Customers, More Customers and Profit. To explain:
  1. Customers. There are two approaches to customer. Make a “one-off” sale or make a number of sales over a long period of time. I advocate the second approach since it maintains a long term income stream. We sold our customers a Messaging Server and then annually a support contract or upgrade to the latest version of software. The target was to retain as many customers as possible.
  2. More Customers. We kept the pipeline of new customers filled to ensure that the increase is greater than those leaving. For example, new customers purchased our Messaging Server due to reviews in magazines, customer referrals, etc. and some we lost because their companies went under, were bought, etc.
  3. Profit. Every sale must makes a profit to keep the company going. Making a profit means knowing the cost of supply of the product or service. For example, we sold Support contracts that would pay for approximately an hour of engineer’s time. On average each support contact would cost us 2.8 hours to resolve. On the face of it we made a loss (and the customer got excellent value for money). But we knew that only 1 in 8 contracts would result in a support incident. (If only we knew which one of eight not to sell!)
Once your company is generating profit then you have dramatically increased your freedom to operate. You can elect to take the profit as dividends; bonuses; more staff; continue innovation in product and/or process; new products; invest in new, external opportunities; etc. The choice is yours. Reproduced with permission from Brian Dorricott at Meteorical  
This entry was posted in Business Development and tagged in Profit, Customers, Entrepreneur by bookchadmin