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The Importance of Management Accounts

 

The latest edition of the Academies Financial Handbook (AFH) emphasises budget monitoring; including the requirement to prepare monthly management accounts. But…

What are management accounts and why are they important?

Monthly management accounts typically include a set of financial reports against which a trust can gauge its present performance and confidently plan its future.

 

In commercial organisations, these accounts are the staple of most board meetings and they can be used to great effect in academy trusts. They include a range of useful reports (see more details below) focused around a statement of financial activities. Producing these reports regularly means you won’t need to wait until the year end to see your trust’s performance, as you can compare actual results against budget and forecast for the remainder of the year - giving you the insight you need to make informed decisions and grow your trust.

 

What’s the difference between management and statutory accounts?

Unlike statutory end-of-year accounts, which simply provide a series of headline figures to satisfy the DfE and Companies House, management accounts drill much deeper, showing how your trust is working at a more granular level.

Relying on statutory accounts for a snapshot of your trust’s health is dangerous, and not just due to the lack of detail. By their nature, some data in your statutory accounts will be twelve months old and won’t reflect the state of your trust here and now.

The use of management accounts is vital to keeping your finger on the financial pulse.

 

What should be included in your management accounts?

There’s no specific format mandated by the AFH for management accounts - it’s simply a case of building a package from the reports most valuable to your trust. This will usually include financial activity figures, cash flow forecasts and a balance sheet, but we recommend that your management accounts also monitor the specific KPIs central to your trust’s success.

Here’s what a typical set of management accounts might look like:

 

  • Executive Summary: the first page should provide an at-a-glance summary of the month’s main highlights, including figures like GAG Revenue, Other Revenue, Cash in Bank and Operating Expenditure for the period, broken down into the academies within your trust to show which parts of your trust are performing well and whether any are struggling.
  • Financial Activity: the Statement of Financial Activities (SOFA) is central, providing a clear snapshot of your trust’s performance.  They aim to show actual results against budget for the month completed, then forecast for the remainder of the financial year. Ensure accuracy by revising forecasts at least once every term - remember that the key difference between a budget and a forecast is that the budget is a plan for where a trust wants to go, while a forecast indicates where it is going.
  • Balance Sheet: your balance sheet shows your financial position; stating the current assets, liabilities, and funds. This is one of the most important reports for judging the financial health of your trust.
  • KPIs: your Key Performance Indicators depend on your trust’s specific goals and can comprise of financial and non-financial information e.g. Revenue or Expenditure per pupil - the revenue or expenditure is financial information obtained from your accounting software, whilst the pupil numbers are non-financial information obtained from SIMs. Reviewing these metrics as part of your management accounts highlights any variance to the forecast - giving you the opportunity to redirect energy or funds if necessary.
  • Cash Flow Statement: for any trust, cash flow is essential to survival. Monitored and adjusted regularly, the cash flow statement (combined with a cash flow forecast) lets you know when surplus money is available and when it isn’t. Schools’ Choice recommends a rolling 12-month cash flow forecast.

 

In summary

As neither your statutory accounts or quick cursory glance at your bank account will ever be enough to assess the true health of your finances, let alone give you sufficient insight on which to build your trust, the regular preparation and review of your management accounts is essential for giving you the most up-to-date information - crucial for making those important decisions.

At Schools’ Choice, our Management Accountants regularly assist with the development of management accounts pack templates and Key Performance Indicators (KPIs). If you are interested in this service, please contact us for a no-obligation discussion.

 

Tel No:   0300 123 1420

Email:     services@schoolschoice.org

 

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