Performance Management: Management Accounts as a tool for financial control

Running an SME to attain short-term liquidity and profit maximization (objectives to sustaining operations in this side of the hemisphere) requires constant tweaking of the tactics in response to the pressures and opportunities in the external environment. This, therefore, requires preparation of management accounts that communicate performance in the context of these objectives and the competitive environment.

Where to?

The link between performance management and financial control is best summed by the overarching need to steer the business in the direction that best serves the shareholders (stakeholders). Subscribing to this thinking makes understanding what measures (KPIs) are important and reflective of the underlying business objective. For example, if the objective is profit maximization the KPIs would be margins which can be compared to highest attainable (internally generated target) and/or general industry standard.

Once objectives are properly assigned KPIs the goal becomes obtaining information on performance. The information should be processed to aid decisions which allow financial control via tactical moves to be actioned i.e., cost control mechanisms, allocation of resources, pricing among other operational decisions.

If not now, then when?

For tactical decisions to be valid, they should be timely based on accurate information. Timely periodic accounting close is as essential as the accuracy of the financial data pulled out from the accounting system. Timeline for presenting management accounts is less than 5 days in the following month for a medium-sized entity.?

Non-financial data uncovers the story behind numbers. Such data includes data that talks of use of resources (timesheets etc.) as well that which relates to market interactions (market feedback). Obtaining such cross functional data means having an integrated data sharing system in place.?

Environmental scans are very useful. There is a need to keep abreast with economic changes. Credible data that seeks to predict future conditions should be brought into the analysis as it brings clarity about the operating environment. The application of the competitive advantage framework together with the business canvas is more fitting in a hyper-changing environment such as ours.

Whether financial or non-financial data, if extracted in haste the information will be faulty. If extracted later into the period in which the decision should be made it will be irrelevant.

Understand the language

Owners normally form part of the SME management. This fact is critical in that, while there may be various other skilled managers, the governance structure (culture) within a business sets the limit of information assimilation and use in running the business. In some cases where the governance structure has little regard for the information it is often a result of how the information is presented. Information can only aid decision making to the extent that it is understandable.??

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