For many business owners, unpredictable cash flow – not lack of profit – is the biggest threat to survival. Even growing companies can run into trouble if the money coming in doesn’t match what’s going out. That’s why management reporting and Key Performance Indicators (KPIs) aren’t just for large business, they’re essential tools for anyone who wants to grow, stay in control, identify potential issues early, make confident decisions and navigate through uncertainty. 

Preparing for management reporting 

The first step to taking control of your cash flow and management reporting is to create a budget.

By creating a budget for the next financial year you’ll set a clear baseline for your income and expenses. This gives you a foundation for tracking performance and staying in control of cash flow. When preparing your budget, you will need: 

• A profit and loss forecast
• A balance sheet
• A cash flow forecast 

Together, these form a three-way budget. Next, identify the key information needed for your business decisions and use that to set your KPIs. For example:   

• Is it important to monitor how many new or repeat customers you have?
• Do you want to track how long customers take to pay?

 Once you’ve chosen your KPIs, set realistic targets for your business, these could be anything from: 

• Three new customers per month
• Maintain a 75% repeat customer rate
• Have fewer than 30 debtor days 

Make sure your KPIs are specific, measurable and relevant to your business goals. Some common pitfalls to avoid are tracking too many KPIs or measuring items that don’t drive performance. 

Once you have completed your budget and set your KPIs, you should upload your budget into your accounting software (such as Xero). This allows you to generate reports to compare your forecasted performance with actual results, giving you real-time insights into how your business is tracking. With the assistance of modern accounting software, it is easier than ever to generate management reports and track KPIs. You can: 

• Access up-to-date financial and operational data
• Create custom reports focused on the information that matters most
• Share reports easily with your advisors for timely insights and support 

From that point, the most important thing is to regularly review your performance, because what gets tracked gets achieved. By reviewing your results monthly, two monthly or quarterly, you can spot issues early, adjust your strategy and stay on track. Remember, cash flow worries often stem from a lack of visibility. Even large businesses encounter the same problems are smaller ones, just on a different scale. 

What to focus on when reviewing management reports 

When reviewing your management reports, some key areas to focus on are: 

• Budget vs actuals – Are you performing above or below your budget? Why?
• Cash flow forecasting – review your current cash position. What does your upcoming cash position look like and are there any upcoming payments that haven’t been budgeted for?
• Debtor and creditor days – How long does it take to receive cash from customers and pay to suppliers?
• Inventory levels – What is happening with you inventory levels? Are you holding too much or too little stock? 

During your review, useful questions to ask yourself or discuss with your advisor may be: 

• “How is performance this year tracking against budget?”
• “What does my job pipeline look like?”
• “What is my break-even turnover?” 

These questions will help you uncover how your business is performing financially and operationally. 

Why is business reporting important? 

Good reporting makes it much easier to communicate with your strategic advisors, such as your banker, accountant or potential business partners. Having up-to-date financial information and a clear understanding of your numbers can support access to funding and also help with succession planning. 

You don’t have to generate and review your management reports alone. Just as large companies rely on finance teams, smaller businesses can gain the same clarity and strategic direction by working with an accountant. 

How an accountant can help with management reporting

Your accountant can help you: 

• Set realistic targets, prepare forecasts and identify the KPIs that matter most
• Create tailored management reports using your accounting software
• Review results regularly and keep you accountable
• Explain what the numbers mean for your business
• Support cash flow planning, compliance and tax strategy
• Advise on business structure, expansion and performance improvement
• Help you spot opportunities and address challenges as they arise
• Provide an external perspective formed from working with many other businesses 

With the right support and by staying on top of your financial performance, you can act with confidence and speed to take opportunities when they arise, tackle cash flow worries, make informed decisions and drive your business forward. 

If you’re curious about how management reporting might benefit your business, feel free to get in touch with your Baker Tilly Staples Rodway advisor. We are happy to help.