What is management reporting?
Management reporting. Sounds important, right? Well, that is because it is important. Just as you wouldn’t drive a car without a speedometer or a fuel gauge, you really shouldn’t be running a business without quality reporting. If you would drive a car without those items, perhaps this post isn’t for you.
First things first, what exactly is management reporting?
Simply put, management reporting is information given to the managers of a business to enable them to quickly and easily see how the business is performing. A well put together management report will only report on the metrics that really matter in a business (i.e. the things that “move the needle”) and will help management make decisions. A good set of reports won’t confuse and won’t bore (!).
So, what does a good set of management reports look like?
Every business is a little different, but as a starting point for many of our clients we like to look at the following items. You’ll notice this might seem a little sparse, and that’s by design. Too much information is almost worse than no information, so we like to focus on what really matters in your business and nothing else.
Budget. A well crafted budget is a beautiful thing indeed. It will enable you to set a path for the business to follow over the coming year(s) and give you a framework within which to operate the business and achieve your goals. What do we need to do in sales next month? Check the budget. How much can we spend at the office party? Check the budget. Typically you’ll set a new budget each year and periodically update the budget during the year as new information comes to hand.
Cash flow. The lifeblood of any business, it’s important to know what cash flow is doing in your business. Unless you’re in dire straits there is no need to micro-manage cash, but you should be able to report on what the future cash balance is for the business over the coming year as well as know what kind of state your trade receivables are in.
And finally we like to look at a some Key Performance Indicators. These will vary business by business, but below are a few that we recommend for most service businesses.
Wage:Revenue ratio. Too often we’re not getting a good return on our wage spend so it’s a wise idea to track this carefully. A good goal is to spend no more than 65% (ideally, less) of revenues on labour costs. And remember that when we talk about revenue we really mean gross profit (i.e. sales less direct costs).
Staff productivity. This one helps you dig into the reasons behind revenue shortfalls as it shows which staff are hitting their personal productivity targets and which are not. Some businesses will report on hours, others on revenue generated, but either way there is accountability on a per-head basis. We would also consider write-offs per team member here as well.
Client/job profitability. This information will let you know which clients or job types are profitable in your business and those which are not. Regular analysis here may lead to letting certain clients go, re-quoting other clients, redesigning or ditching certain service offerings – all in the pursuit of profit.
Five items. That’s it. With the information gathered from these five items you should have most, if not all, of what you need for a really useful set of management reports. From here we can see if we’re hitting our targets, keep an eye out for future cash dramas, and find out which staff/clients/jobs are helping or hindering the bottom line.
We recommend that for most small businesses you prepare these management reports once a month (for example, shortly after month-end) and then sit down as a management team to discuss the results. If things aren’t going to plan, identify why that is and make course corrections now (!) rather than waiting until the end of the year and thinking “oh, crap, we didn’t hit target”.
And a final note. Remember the old adage: garbage in, garbage out. Reliable reporting requires reliable data and that means quality, up-to-date bookkeeping. It also means immaculate time sheets and job management software for service businesses.
If you’d like help putting together a management reporting system for your business, why not get in touch today? We have loads of experience working with small businesses to create reporting structures and we’d love to help you and your business. Unsure about the quality of your data? We can also assist with bookkeeping. We’ve got you covered.