For any business leader, tracking key performance indicators and making sense of your numbers is essential – and regular management reporting is a good way to make this happen.
It takes a lot of effort, but, in our view, a robust management report is the most valuable tool for a well-managed, high-performing business.
If this sounds new to you, don’t feel intimidated.
We’ll walk you through everything you need to know to put a solid management report in place for your business.
What is a Management Report?
A management report is intended to objectively report management progress toward a business’ agreed-upon financial goals and/or KPIs.
The report should provide a top-down view of the company’s financial health, beginning with the basics like revenue, gross profit margin and operating expenses, plus net operating income – both before and after-tax considerations.
Most importantly, a management report is an internal business document, intended to be studied and discussed internally, rather than shared for public consumption.
This type of report can paint a clear picture of the business’ health, enabling leaders to make informed operational and strategic decisions.
Reviewing management reports allows leaders to identify areas that need improvement, highlight patterns and trends, and develop strategies to improve performance, efficiency, profitability, and growth.
To be most effective, management reports should be shared on a regular and timely basis – for example, every business quarter.
How is a Management Report Different from a Financial Report?
While both management and financial reports contain financial information; they serve different purposes and audiences.
Financial reports are retrospective, giving a historical view of financial performance for external stakeholders like investors and regulatory bodies.
In contrast, management reports are forward-looking, focused on tracking progress toward internal goals and facilitating decision-making among business leaders.
Unlike a financial report, which is externally oriented and follows regulatory requirements, a management report provides a top-down view of business performance.
We recommend that a management report be written and presented in a summary format, primarily by the executive sales and operational business leaders.
While the financial leader should vouch for the integrity of the information, it’s actually the executive sales and operational business leaders who present the information.
So, in that respect, it isn’t a financial report – it is a management report, presented in a different context, from a different perspective and for a different audience.
What Are the Key Benefits of a Management Report?
Regular and accurate management reports provide a host of benefits for any organization – including the following:
Identifying Cost Variance
All too often, we find company shareholders and CEOs who are frustrated when they discover they aren’t meeting profit expectations.
Often, they find that a root cause of this failure is a lack of cost accountability.
This kind of thing shouldn’t come as a surprise.
A management report format can provide an essential top-down cost review, ranging from cost of goods sold to operating costs and G&A costs.
The report should also provide a variance to budget or profit goal with a positive or negative result in both dollar and percentage terms.
Improving Decision-Making, Accountability, and Insight
Management reporting is vital for business leaders because it enables quick, data-driven decisions.
These reports provide accurate insights into KPIs, allowing leaders to set performance goals and drive necessary changes.
Operational leaders, not financial leaders, should explain cost variances.
This ensures accountability and provides insights into whether variances are due to actual cost differences or timing differences (e.g., costs budgeted for April but incurred in August).
Negative variances that are not timing-related require explanations of why and how extra costs were approved.
In addition, management reports can serve as a powerful communication tool within your business, promoting the collective sharing of information.
This enhances teamwork and ensures everyone is aligned with the company’s performance goals.
Enhancing Internal Cost Controls and Forecasting
Management reports play a critical role in assessing internal cost controls and improving forward forecasts.
When unexpected costs are incurred, it is essential to evaluate the approval processes and internal controls that allowed these expenses.
This evaluation helps identify weaknesses and develop strategies to prevent future budget overruns.
Developing Effective Managers
A robust management report is more effective than a traditional financial statement in driving goal attainment and developing effective managers.
By providing detailed insights into cost variances and operational performance and aligning focus & improvement initiatives management reports help leaders make better decisions that align with the company’s goals.
These more effective managers will not only know better how to drive business improvement but will learn much sooner how to explain to others how their actions add value and accomplish the agreed goals.
Embracing management reporting can lead to more effective management practices and a higher-performing business.
And it’s never too late to harness the power of management reporting to drive growth and ensure a prosperous long-term future.
If you’d like a partner in that process, our team is here to assist you. Reach out today to set up a consultation with one of our trusted family business advisors. We’re here to help.