Fast turnaround of monthly management accounts is something that everyone aspires to, and very few manage to achieve in a satisfactory manner. We hear all sorts of reasons:
‘My suppliers haven’t sent in all of their invoices yet’
‘WIP takes days to calculate’
‘Operations keep us waiting’
Timely management accounts are more useful to management, cost less to produce, and ultimately free up time for a forward-looking finance function.
Major corporates get this right. The average turnaround time is 5 days; a 9 day turnaround would be regarded as slow. Some exceptional companies have slimmed the whole process down to 1-2 days after month-end, and some retail companies are even running a daily P&L that is meaningful for management. So why do smaller, simpler, owner-managed business struggle to turn management accounts around in a timely way?
In our view, getting timely management accounts is a mindset issue (how much do we want to do this?) and an operational issue (what can we do to remove the bottlenecks and get a faster process?) The amount of work to be done every month is a known quantity, but often the expectations aren’t.
From our experience working with clients, we have identified three key points that are needed to get a regular flow of management information on a timely basis. Without any of these three points, it will be difficult to get results.
1. Driven from the top
The Managing Director needs to be the driving force in achieving a disciplined month-end cut-off. It’s not good enough to just set a goal of 5 days and leave it to the Finance Manager. Producing good management accounts requires inputs from all areas of the business, and without the direction and priority from the top of the organisation, the requests from finance will always take a back seat for other departments. The MD also needs to set priorities and remove obstacles that are blocking the production of timely management accounts, in a way that a purely finance/sales/operations-oriented mindset will not achieve.
2. This requires everyone
It is very rare that monthly accounts do not require any input from elsewhere in the organisation. Expectations should be clearly explained by the finance manager and understood by other members of the organisation that are required to provide inputs. In addition to this, the entire finance team needs to be aligned to the month-end process, with clear rules and deadlines understood and followed. If you use an external accountant for your monthly reports, ensure they are included in the plan.
3. Systematically remove the obstacles
Hold a team workshop to map out the whole monthly reporting process and what the obstacles are for each task. Work on a plan to cut down the time and get buy in from all the necessary staff members and departments. Here are a few examples of typical obstacles to overcome:
- Late Supplier Invoices – Train your suppliers to get their invoices in within 2 days of month-end. Close the purchase ledger at the end of day two and accrue for any invoices you expect but haven’t yet received.
- Start before the end of the month. Reconcile the bank weekly, or even daily. Close off sales on the last day of the month, not several days later. Post the payroll journal as soon as the wages are prepared – normally several days before month-end. Run the depreciation several days before cut-off – the depreciation of any new assets in the last day or two of the month will not be material.
- Keep on top of the daily grind and don’t
let the work pile up. Spread the load so that no single individual is the
blockage. Having the data entry largely completed ahead of the month-end will
reduce the pressure of the month-end procedures and allow a focus on tying up
loose ends and checking of accuracy.
- Instil a discipline to ensure that staff
expense claims are submitted by 9am on the first day of the following month.
- Hold a WIP meeting before month-end with
project managers, to get on top of the expectations of each project by month-end
– this will enable rapid estimation of WIP values once the purchase ledger is
closed for the month.
Ultimately, a rapid month-end close is a
team effort, and a company-wide discipline, that is well worth the effort.
Proper planning, team engagement and process mapping will streamline the
operation and make for enhanced quality and timeliness of management reporting,
which will positively impact on strategic decision making.
If you would like UBTA to facilitate a
workshop on how to bring forward your month-end cut-off, please get in touch
with us at [email protected].