Modern accounting software can give business owners access to financial information almost instantly. That does not necessarily mean they are looking at the right information.
A dashboard containing turnover, bank balance and profit can be useful, but these figures may tell only part of the story.
Consider a business where sales have increased by 10%. That sounds encouraging. If gross margin has fallen at the same time, however, the additional sales may be producing surprisingly little extra profit.
Similarly, a healthy bank balance can disguise problems ahead. VAT, PAYE, Corporation Tax and supplier payments may already account for much of the cash sitting in the account.
This is why useful management information should start with the decisions you need to make rather than the figures your accounting software happens to display.
For example, a business concerned about profitability might monitor gross margin by product, service or customer. One concerned about cash flow could follow debtor days, overdue accounts and expected cash requirements. A business trying to improve productivity might compare staff costs or hours worked with output or revenue.
The important point is to keep the list manageable.
A report containing 25 key performance indicators can easily become something nobody reads. Three or four carefully selected measures, reviewed consistently, may be far more useful.
It is also worth establishing what should happen when a figure moves outside an acceptable range. If gross margin falls below a target percentage, who investigates? If debtor days increase, when does someone contact customers?
Management information becomes valuable when it prompts action.
Instead of asking, “How did we do last month?”, try asking a more useful question:
“What do we need to know now to make next month better?”
That small change of emphasis can turn accounting information from a historical record into a management tool.