Management accounts: monthly for nothing

THE FLURRY of comments that followed the news of Vince Cable’s enthusiasm for SMEs to produce monthly management accounts, boils down to the hoary old issue of time and money.

Some small businesses have argued that they simply don’t have the resources to meet this extra commitment. Essentially, the debate has been about producing basic financial accounts cheaply on a monthly basis. But without the underlying insights, these are not really management accounts – in the sense of analysing the data needed to manage performance.

Monthly management accounts are essential for any SME that is serious about growth. To operate effectively and to respond nimbly to the challenges ahead, SMEs need to have a clear idea about income, expenses, what leads are coming in for new business and basic operating efficiencies.

This has to be done on a regular basis or they won’t have the flexibility to respond to any sinister changes before they become a problem. Short interval control is the name of the game. Monthly is good. A simple weekly collection of key figures is better. KPIs are another essential tool – but that’s a different story.

The crux of the issue is that, as it stands, many SMEs aren’t getting value for money from their finance professionals. Most are already paying a high street accountant thousands of pounds each year. And what do they get for their money? Straightforward financial and accounting compliance. Nothing on top.

My contention is that management accountants should provide a much more value-added service for the same price – or possibly even less. New technology in the form of cloud computing and remote access means that once the basic accounting and other primary recording systems have been put in place, a business’s finances can be monitored quickly and easily. And if the accounts are being done on a monthly basis, the year-end accounts become a piece of cake.

But more importantly, once the financial information is collected, management accountants can then do their stuff – by analysing the information and providing the vital guidance and advice to help businesses predict risk and develop their growth potential. And all this can be done in the price. You could see them as financial fitness buddies who ensure that a company has a healthy financial regime in place.

In theory, fitter finances will also make it more possible for companies to get credit. Some banks are still trying to pull a fast one, but if a business can present a powerful argument -and show they have the process and the controls in place to demonstrate that the company and its need for funding is viable – there are deals to be had. But more than the loan potential, SMEs need regular information for themselves. It’s a move towards long-term, sustainable health. All for under £10k a year.

I can see the reaction from my fellow finance professionals now. It’s a clear case of pushing many of them out of their profit zone. But I know it’s possible and in this competitive age, the smart and ambitious are already finding ways to do it. There is huge potential there both for accountants and SMEs. This should be a great synergy that can help SMEs to improve the muscle tone of their cash-flow as they move into a new year and a whole new set of challenges.

Robin Tidd is a business growth coach and former chairman of CIMA’s members in practice management group.