Management reports are essential for businesses that want to keep up with a changing, dynamic landscape. They give a useful overview of where the business currently is so leaders can plan their next steps wisely.
This is the first of four articles going into detail about management reports. This one looks at the basics: what they are, the characteristics of high-quality management reports, how to automate them, and how to format them.
The three articles to follow will give deeper insight into profit and loss statements, balance sheets, and achieving healthy cash flow. But first, let’s work through the basics.
What is a Management Report?
A management report is a collection of data gathered from various parts of a business that enables managers to track key performance indicators (KPIs) for better-informed, strategic decision-making and goal-setting.
3 Characteristics of High-Quality Management Reports
Management reports are only useful when done properly; a poorly prepared or presented management report can be frustrating and misleading.
The following attributes are fundamental for high-quality management reporting:
1. Accuracy
Accuracy is driven by the quality of the input data and processes used to generate the management reports. Efficient automation relies on robust checks and balances built into the system.
2. Timeliness
Management reports are only as valuable as they are relevant and timely.
The framework used for drawing up management reports must be adaptable so that a change in the inputs or format can be adopted swiftly without compromising deadlines in the reporting process.
3. Relevance
Daily processing, operations, and risk assessment functions are carried out at various levels of the business. Depending on the size of the business, directors and owners may be far removed from the day-to-day functions, focusing instead on higher-level strategy and goal setting.
This separation of duties makes it necessary to ensure that dashboards, ratios and analyses presented in the management reports are useful for the decision maker who may be far removed from the granular details.
Using Automation for Efficient Management Reports
In a time when businesses are increasingly adapting to the automation and digitisation of processes, management reporting has begun to take on a new meaning. Management reporting can now seamlessly form part of a business’s everyday operations rather than being a time-consuming side project.
This means that less time and energy is spent putting together management reports complete with human error. Automation has made this process almost instantaneous and far more accurate. It also helps business owners focus on both operational processes and management reporting, instead of prioritising the former.
Below are some examples of business process automation resulting in timely, relevant and accurate management reporting:
- Automated, real-time bank feeds to replace manually captured bank statements
- Digital sign-off of invoicing and expenditure
- Electronic logbooks
- Automated prompts to signal required action for individual and team tasks
How to Format a Management Report
Whilst there is no prescriptive management report format, there are guidelines for representing effective management reports that add real value. Management reports will typically comprise the following:
- Executive summary
- Balance Sheet or Statement of Financial Position
- Profit and loss statement
- Cash flow statement
Executive Summary
The executive summary provides key highlights for the reporting period. A well-presented executive summary should paint an accurate and concise picture of the following:
- Key focus areas and the action required
- Financial position
- Key performance areas and metrics
- Operations
- Overall strategy
- Product and/or service
- Team
The executive summary works as a snapshot of the entire management report and sets the tone for key discussion areas in the management meeting.
Balance Sheet or Statement of Financial Position
The purpose of a balance sheet is to give interested parties an idea of the company’s financial position, in addition to displaying what the company owns and owes. All investors must know how to use, analyse and read a balance sheet. A balance sheet may give insight or reason to invest in the business.
The balance sheet consists of three main components:
- Assets: what the business owns
- Liabilities: what the business owes
- Equity: assets less liabilities and represents the accounting business value
All businesses should monitor their balance sheet regularly to improve it.
Continue reading about the importance of balance sheets, their purpose, components, and actions to take to improve yours.
Profit and Loss Statements
The profit and loss statement (or P&L in accounting jargon) is arguably the key management statement for most SMEs, recording the majority of operational activities over any period of time, usually monthly. Ranging from the total revenue received to all the expenses incurred by the business over the period, the P&L is a treasure trove of information for any business owner.
Here is a basic format of the Profit and Loss Statement:
- Sales Revenue
- (Cost of Sales)
- = Gross Profit
- (Expenses)
- = Net Profit before Interest and Tax
That’s just the skeleton of a P&L, to flesh things out read our complete business owner’s guide to understanding and working with the profit and loss statement.
Cash Flow Statements
The cash flow statement is one of the most important and often overlooked financial reports. The profit and loss statement provides information on the revenue and expenses over a certain period. This is used alongside the balance sheet, which gives a snapshot of the financial health of a business. Out of the information from both of these reports, the cash flow statement is born.
A cash flow statement is made up of several components, including:
- Operating Profit / Loss
- Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA)
- Cash Generated from Operations
- Net Cash from Investment Activities
- Net Cash from Financing Activities
- Change in Cash & Cash Equivalents
- Closing Cash & Cash Equivalents
Because your cash flow statement is one of the most integral parts of a management report, we recommend reading more about understanding and achieving a healthy cash flow.
Finding Alignment in Management Meetings
Management meetings allow active engagement between management and the financial advisor. This directs the strategy that will be applied at various levels of the business.
As with any literature, certain aspects of the management report may be open to varying interpretations. The goal of the management meeting is for alignment and discussion to make sure everyone is on the same page.
Start Benefiting from Management Reports
Management reports play a crucial role in weaving together the results of daily processes, performance, and reporting across all pillars of business. They present the big picture and provide the clarity that business owners need in an increasingly dynamic world.
Management Reports are one of many things that Creative CFO specialises in. Contact us to handle your management reports so you can grow your business with a full suite of insights in your corner.
