Financial Management Information for Better Business Decisions
Modern accounting software can give business owners access to financial information almost instantly. That does not necessarily mean they are looking at the right information. Financial Management Information helps businesses understand their financial position and make informed decisions based on relevant figures.
A dashboard containing turnover, bank balance and profit can be useful, but these figures may tell only part of the story.
A business where sales have increased by 10% may appear to be performing well. If gross margin has fallen at the same time, however, the additional sales may be producing surprisingly little extra profit.
Similarly, a healthy bank balance can disguise problems ahead. VAT, PAYE, Corporation Tax and supplier payments may already account for much of the cash sitting in the account.
This is why useful management information should start with the decisions you need to make rather than the figures your accounting software happens to display.
How Financial Management Information Supports Better Decisions
For example, a business concerned about profitability might monitor gross margin by product, service or customer. One concerned about cash flow could follow debtor days, overdue accounts and expected cash requirements. A business trying to improve productivity might compare staff costs or hours worked with output or revenue.
The important point is to keep the list manageable.
A report containing 25 key performance indicators can easily become something nobody reads. Three or four carefully selected measures, reviewed consistently, may be far more useful.
Financial Management Information for Better Business Decisions
Modern accounting software can give business owners access to financial information almost instantly. That does not necessarily mean they are looking at the right information. Financial Management Information helps business owners identify the figures that matter most when making decisions.
A dashboard containing turnover, bank balance and profit can be useful, but these figures may tell only part of the story.
Consider a business where sales have increased by 10%. That sounds encouraging. If gross margin has fallen at the same time, however, the additional sales may be producing surprisingly little extra profit.
Similarly, a healthy bank balance can disguise problems ahead. VAT, PAYE, Corporation Tax and supplier payments may already account for much of the cash sitting in the account.
This is why useful management information should start with the decisions you need to make rather than the figures your accounting software happens to display.
Using Financial Management Information to Guide Decisions
For example, a business concerned about profitability might monitor gross margin by product, service or customer. One concerned about cash flow could follow debtor days, overdue accounts and expected cash requirements. A business trying to improve productivity might compare staff costs or hours worked with output or revenue.
The important point is to keep the list manageable.
A report containing 25 key performance indicators can easily become something nobody reads. Three or four carefully selected measures, reviewed consistently, may be far more useful.
Businesses should also compare current figures with previous months, budgets and forecasts. This helps identify whether performance is improving, falling behind expectations or being affected by seasonal changes. Looking at trends rather than individual figures can provide a clearer picture of financial performance.
It is also worth establishing what should happen when a figure moves outside an acceptable range. If gross margin falls below a target percentage, who investigates? If debtor days increase, when does someone contact customers?
Management information becomes valuable when it prompts action.
Instead of asking, “How did we do last month?”, try asking a more useful question:
“What do we need to know now to make next month better?”
That small change of emphasis can turn accounting information from a historical record into a management tool.
Making Financial Management Information Work for Your Business
Regularly reviewing a focused set of financial indicators can help business owners identify risks, plan spending, and make better-informed decisions about future growth. The key is to use accurate information and turn the findings into practical actions.
For additional guidance on financial decisions and long-term planning,
Independent Financial Advisors can help you understand your options and consider your wider financial goals.
