Read on to find out…how one family business was receiving management accounts every month yet still had little understanding of its financial position. 4 minute read
A surprising fact
A few days ago, I received a lovely email from a valued professional contact in response to an article I had written called “My Accountant Will Tell Me If There’s a Problem“ .
His message included a story from many years ago that immediately caught my attention because it highlights a problem I have seen repeatedly throughout my career.
The details have been anonymised, but the lesson remains highly relevant.
The story involved a family-owned business run by a husband and wife team.
They weren’t in financial trouble. In fact, by all appearances, the business was ticking along reasonably well.
When my associate asked who was responsible for the accounts, the husband pointed to his wife. Looking slightly uncomfortable, she explained that she simply entered invoices, receipts and payments into the system.
The business also had an accountant who visited once a month.
The accountant prepared the VAT returns and monthly management accounts.
So far, everything sounded positive.
Then my associate asked to see the latest management accounts.
The owners didn’t have a copy.
Nor did they have copies of previous VAT returns.
No forecasts had been prepared.
No cash flow projections existed.
Most importantly, nobody had ever sat down with them to explain what the numbers were saying about the business.
The husband openly admitted he didn’t understand the financial side of the company and relied on his accountant for guidance.
The problem was that no guidance was being provided.
Only reports.
When copies of the management accounts were eventually obtained, they appeared to show that the director’s loan account had increased dramatically during the year.
The owners were horrified.
They were convinced they hadn’t taken anywhere near that amount from the company.
After some investigation, the explanation turned out to be surprisingly simple.
The accountant had not yet posted all of the opening balances into the accounts, despite the year being almost complete.
The figures themselves were misleading.
However, that wasn’t the real concern.
The real concern was that nobody running the business understood what they were looking at, and nobody was helping them understand.
That struck me as far more worrying than the accounting issue itself.
Sadly, stories like this are far from unusual.
In a later conversation, my associate told me he heard that the company eventually entered liquidation.
Whether better financial support would have changed the outcome is impossible to know.
What we do know is that business owners cannot make informed decisions if they don’t understand the financial information in front of them.
A better approach
Most business owners are experts in their industry, not accounting.
They don’t need to become accountants.
But they do need someone who can explain the numbers in plain English.
Management accounts have very little value if they remain unread, unexplained or misunderstood.
Good financial support should help owners answer practical questions.
Are we making money?
Is cash likely to become tight?
Can we afford to grow?
Where are the risks?
Most importantly, what should we do next?
Numbers alone rarely answer those questions.
Conversations do.
Our Views
At Insight Associates, we regularly meet business owners who receive financial reports but have never been shown how to use them.
The issue is rarely a lack of intelligence or capability.
More often, nobody has taken the time to translate the figures into meaningful business insight.
Good financial information should build confidence, not confusion.
Business owners should never feel they are flying blind while reports are being produced around them.
Because producing numbers and understanding numbers are two very different things.
And understanding them is where better decisions begin..
If you’re receiving reports every month but still feel uncertain about the financial future of your business, perhaps the question is not whether you’re getting accounts, but whether you’re getting insight.
You might also like:
Everyone Nodded. That’s when I got worried A message on how management accounts are not enough: owners need explanation, conversation and confidence to understand them.
