Tuning by Numbers

How well is your engine running?
Would you know when it's running rough?
Do you know how to tune it?

Management accounts in business are rather like the fuel management system of your engine, they make sure your business is running as it should, and producing the results you want.

The cornerstones of management accounts are:

• cashflow forecast - so you can predict when cash will be at risk or surplus
• profit and loss - showing what you have earned and spent
• balance sheet - showing what you own and what you owe giving your overall financial position

For these to be useful, as we covered in our last article, you need to have established your plan for profit, comprising:

• Sales targets
• Expense targets
• Annual budget (your plan for profit)

In addition, you need to establish any other KPIs (Key Performance Indicators) that are useful for understanding the financial performance of your business, eg:

• Revenue per client or product line
• Profitability per client or product line
• Profitability per employee

The challenge for many small businesses is not to just produce these forecasts but to stay up-to-date with their bookkeeping - and then produce frequent reports which they have time to analyse. Followed by putting plans and reviews in place to improve financial performance.

This requires not just motivation, but commitment, to do this as a regular discipline. When done well this literally pays dividends.

My reminder and questions to you are:

Are you up-to-date with your data entry/bookkeeping?
Do you produce regular management accounts?
Do you analyse and make plans to improve your performance?