Your accounts show a €6,000 profit. Your bank balance has fallen by €3,000. Before you approve another hire or stock order, you need to understand both numbers.
At a glance: Management accounts are regular reports that show your business’s profit, financial position and cash movements during the year. They usually include a profit and loss account, balance sheet, key measures and commentary. Their purpose is to help you decide what to do next. ACCA describes management accounting as financial analysis that supports internal decisions. A useful pack explains what changed, why it matters and who will act on it, rather than leaving you to interpret a spreadsheet.
You can have last year’s accounts filed and still not know whether you can afford your next hire. Those accounts did their job. They just did not answer the question you need answered today.
Sometimes the missing input is described as needing a CFO. Often the first gap is more basic: reliable monthly numbers, someone who explains them, and a conversation about what happens next. Start with that gap before buying a more elaborate finance function.
Stock photograph: Luke Southern / Unsplash.
What should management accounts include?
The pack should fit your business. A retailer needs to understand stock and product margins. An agency needs to understand project profitability, staff capacity and unpaid invoices. More pages do not automatically mean better reporting.
| Part of the pack | What it tells you | Question to ask |
|---|---|---|
| Profit and loss account | Sales, direct costs, overheads and profit for the period | What drove the result, and how does it compare with plan? |
| Balance sheet | What the business owns and owes at a point in time | Where is money tied up, and which liabilities need attention? |
| Cash movements | Why the bank balance increased or decreased | Why is profit different from cash? |
| Selected performance measures | The few measures that explain your business | Which product, customer or activity needs a closer look? |
| Commentary and actions | The explanation and the agreed response | What changes next, who owns it and when will we check? |
A cash-flow forecast answers a different question: what may happen to cash in the weeks and months ahead. It can sit alongside management accounts, but it is not automatically included in every reporting package.
Management accounts example: a profit, but less cash
Here is an illustrative monthly pack for a business selling products on credit. It is not a client case. Figures exclude VAT, and the example leaves out tax, financing, dividends and capital purchases to make the movements easy to follow.
1. Read the profit and loss account
| Monthly result | Actual | Budget |
|---|---|---|
| Sales | €80,000 | €100,000 |
| Cost of goods sold | €48,000 | €60,000 |
| Gross profit | €32,000 | €40,000 |
| Gross margin | 40% | 40% |
| Overheads, including depreciation | €26,000 | €25,000 |
| Operating profit | €6,000 | €15,000 |
The business made €6,000, but that is €9,000 below plan. The gross margin held at 40%. Lower sales reduced gross profit by €8,000, and the extra €1,000 of overheads explains the rest.
That is a different problem from selling more while losing margin. The first conversation should be about the sales shortfall and overhead commitments, rather than assuming suppliers became more expensive.
2. Look at the balances behind the result
These are selected balance-sheet balances, not a complete balance sheet.
| Balance | Start of month | End of month |
|---|---|---|
| Bank | €30,000 | €27,000 |
| Customer invoices owed to the business | €30,000 | €40,000 |
| Stock at cost | €26,000 | €30,000 |
| Amounts owed to stock suppliers | €15,000 | €18,000 |
More money is sitting in customer invoices and stock. An aged debtor report shows which invoices are overdue. A stock report shows whether the increase supports expected sales or represents slow-moving products.
3. Explain the cash movement
| Profit-to-cash movement | Amount |
|---|---|
| Operating profit | €6,000 |
| Add back depreciation, a non-cash expense | €2,000 |
| Increase in customer invoices outstanding | −€10,000 |
| Increase in stock | −€4,000 |
| Increase in amounts owed to stock suppliers | €3,000 |
| Net cash movement | −€3,000 |
The business made a profit while its bank balance fell from €30,000 to €27,000. There is no contradiction. Profit and cash measure different things.
In this example, €80,000 of sales produced €70,000 of customer receipts. Stock purchases were €52,000, with €49,000 paid to suppliers. Cash overheads were €24,000. That gives €70,000 less €49,000 less €24,000: the same €3,000 cash reduction.
Three decisions to take from this pack
Review the sales plan before committing to more overhead. Find out whether the €20,000 shortfall is timing, lost sales or an unrealistic budget. A sales target may motivate the team. It should not be the only basis for a hiring decision.
Assign the overdue invoices. Identify what is late, agree who will follow up and put realistic receipt dates into the cash forecast. A larger debtor balance alone does not prove customers are late, so check the invoice detail.
Review the next stock order. Look at what is selling, what is already on order and when suppliers need paying. The bank balance alone cannot tell you whether the order is affordable.
Each decision should finish with a named person responsible and an agreed deadline. At the next review, check what happened before moving on to the new month’s figures. Otherwise the same problem can appear with a different number beside it.
Management accounts versus annual accounts
Annual accounts report the financial year and serve formal reporting purposes. Management accounts give you information during the year so you can manage the business.
The underlying records should connect. Management reporting may add product, channel, customer or project detail, together with comparisons and commentary. It should not become a second set of unexplained numbers that never reconciles with the accounts.
Year-end accounts and timely management reporting serve different purposes. A growing business can need both.
Monthly or quarterly management accounts?
Match the reporting rhythm to the decisions. Monthly reporting is often useful when sales, margins, stock, payroll or cash commitments change quickly. Quarterly reporting may suit a steadier business with simpler operations.
Agree when records are due, when the pack will arrive and when you will discuss it. A monthly report delivered too late can miss the decision it was meant to support.
Agree a reporting deadline that reflects your records, systems and the decisions you need to make.
A software dashboard is only the starting point
Before relying on a report, check that the bank is reconciled, sales and purchase records are complete, payroll is posted and stock is updated where relevant. Costs and income also need to be recorded in the right period.
Check accruals for costs incurred but not yet invoiced, prepayments for costs covering future periods, depreciation and any required revenue adjustments. If these are missing, one month can look stronger simply because a supplier invoice has not arrived.
A clean dashboard can present an incomplete picture very convincingly. Reconcile and review the records before relying on the result.
Use our accounting software guide to consider the systems. Use the review conversation to understand what the numbers mean.
What should you expect from your accountant?
Ask them to explain the main movement in profit, the reason cash changed and the decision that needs your attention. You should not have to become an accountant to get a clear answer.
At Around Finance, management accounts sit within an agreed reporting and review scope. The pack, delivery dates, comparisons and meeting rhythm are agreed before work starts. Forecasting or more detailed analysis is scoped where needed.
If you run a growing Irish business turning over €250,000 or more and still make important decisions without dependable numbers, book a Finance Fit Call.
FAQs
What are management accounts in simple terms?
They are regular reports that explain how your business is performing during the year. They usually cover profit, what the business owns and owes, cash movements and a small number of useful measures, with commentary and actions.
Do management accounts include a cash-flow forecast?
They can, if agreed. A report on cash movements explains what has already happened. A forecast estimates future receipts, payments and funding needs. Ask which is included in your scope.
Can my bookkeeping software produce management accounts?
It can produce the underlying reports. The records still need to be complete and reconciled, with any necessary month-end adjustments. The explanation and decisions need someone who understands the business.
How much do management accounts cost?
Our Control package starts from €750 per month excluding VAT and includes management accounts, review and agreed actions. This is a complete accounting package price, not a standalone reporting quote. Reporting frequency, detail and meetings are agreed in your proposal; software subscriptions and catch-up work are separate. See our current pricing.
Do I need a CFO as well?
It depends on the work required. Reliable reporting and regular financial input may address the immediate gap. Funding, expansion and more involved planning may call for wider support. Start with the decisions you need help making, then choose the level of support.
