Don't you believe it ... monthly accounts help you to manage

As the banking crisis deepens, you may be using your monthly management accounts as the basis for tough decisions. Beware. They hide more than they reveal.

Last Updated: 31 Aug 2010

Management accounts ignore commercial logic. It says 'marketing costs' on the spreadsheet, but is it really? Are salaries included, or are they on a different line with the other salaries? Even if you can see the true cost of marketing, where can you check the results that marketing produced? You can see total sales, but how much would have come in anyway from established customers?

They show meaningless averages. HR reports that employee satisfaction, on a scale of 1 to 5, averages 4. Great news. But you discover that behind the average lies a nucleus of malcontents reporting 1 or 2 - and they are the customer-facing ones. An HR director wouldn't make this mistake, but management accounts do, all the time. All they report is averages, so you never find out about dangerously unprofitable customers or products.

By the time they tell you anything significant, it's too late. Six months ago, there was a botched reorganisation in manufacturing. For five months you have been falling short on quality and delivery, for three months customers have been unhappy, and for the past month you've incurred long-term damage to your reputation. But the first time monthly accounts tell you about the mayhem is when this month's sales 'mysteriously' fall.

In these troubled times, you need to be looking forwards, and with crystal clarity. The best that management accounts can offer is a blurred picture out of the rear window. You have been warned.

Alastair Dryburgh is head of Akenhurst Consultants -

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