Introduction to this document

Indexing management accounts

Nearly the entire focus of management accounts is performance against budget and looking at the reasons for variances. However, comparisons with how you were doing this time last year, i.e. “growth”, are also critical. Adding indexing to the monthly management accounts spreadsheet provides an indicator of performance which is easy for the board to understand.

Simplify the figures

Budgets, by their very nature, are set before the financial year starts and contain, however realistic you try to make them, the optimistic expectations of all parties concerned in the process. This could result in you regularly reporting to the board negative variances between actual and budget figures on key performance indicators.

When you’re preparing your commentary on next month’s management accounts, have a look at the cumulative (year-to-date) figures to see if these will sum up trading better than diving into the monthly ups and downs on a line-by-line basis. Directing the board in this way saves both their time and yours. You might even be able to point out more good news than bad. For example, "Although cumulatively the company is behind budget, it is still ahead of last year at this stage".

Try adding an extra column next to last year’s comparative figures which compares actual year-to-date with last year’s cumulative, but using last year’s figure as base 100. So for a particular line of income or expenditure, say, 95% appearing next to it means you are 5% down on last year and 105% means 5% up.

For next month’s accounts, look at the year-to-date figures to see if these will sum up trading better. Index this to how the company was doing this time last year to get a complete trading picture. Use our Indexing Management Accounts document to help you put this into place.