Overview
Financial Reports vs. Management Reports: There is a critical difference?
Most business owners are familiar with the basic financial reports they should be getting monthly such as standard Profit and Loss Statements, Balance Sheets and historical Cashflow Statements. However, many are less familiar with the kinds of management reports available that could help their businesses increase performance and improve profitability.
What is Financial Reporting?
A financial report details the financial performance and financial position of a company and consists of 3 financial statements - the Profit and Loss Statement, Balance Sheet and Cash flow Statement. Financial reports are generally prepared for external users such as banks and regulators. A structured approach based on accounting principles is usually taken when preparing and presenting financial reports. The main objective of a financial report is to accurately present the financial performance and position of the business at a particular point in time.
What is Management Reporting?
Management reports also include the Profit and Loss Statement, Balance Sheet and Cash flow Statement, however will also include an array of additional information. Management reports are prepared for internal use. The main objective of a management report is to provide business owners and leaders with financial and statistical information that assists in making the right operational and strategic decisions.
Unlike financial reporting, a structured approach is not required when preparing management reports. As the objective of the report is to assist business owners and leaders, any approach or layout that provides management a clear and accurate view of how the business is doing, can be used. It is for this reason that management reports will often include graphical representations of key financial information.
Why Your Business Needs Both Financial and Management Reports
If you don’t receive management reporting each month you could be missing out on information that can help your business make key strategic decisions on growth profitability, efficiencies, Return on Investment etc.
At CK Accounting, we work with business owners to create bespoke Management reports that are tailored to your business to assist with key business decisions. They are created solely to assist in decision making which means that financial information, financial ratios and key statistics can be recorded, calculated and presented in a range of different formats if it is deemed to be useful and insightful to the management team.
For example, if you are operating out of multiple locations then you may wish to see a section in your management report that compares the revenue and profitability of each location. Another example would be tracking your revenue to wages ratio to ensure that you are maintaining your margins and remaining profitable as you grow. Management Reports can be in graphical form which can facilitate readability and understanding. The following are examples of information that can be presented in a graphical format:
- Revenue trends
- Profit trends
- Net cash flow trends
- Cash flow waterfall
- Cash conversion (ability to convert revenue into cash)
- Net asset movements
- Revenue to wages
At CK Accounting, we have extensive experience in preparing and presenting management reports to business owners and leaders.