Financial reports and management reports, although similar in many ways, serve different purposes and are intended for different users.
Financial Reports vs Management Reports
Financial and accounting terms such as revenue, cash flow and margins are often thrown at business owners whether they like it or not. Most will be aware of the basic Profit and Loss statement and the Balance Sheet, however financial reports and management reports, although similar in many ways, serve different purposes and are intended for different users.
A financial report details the financial performance and financial position of a company and consists of 3 financial statements - the Profit and Loss Statement, Balance Sheet and Cash flow Statement.
Financial reports are generally prepared for external users such as banks and regulators. A structured approach based on accounting principles is usually taken when preparing and presenting financial reports.
The main objective of a financial report is to accurately present the financial performance and position of the business.
Management reports also include the Profit and Loss Statement, Balance Sheet and Cash flow Statement, however will also include an array of additional information.
Management reports are prepared for internal use.
The main objective of a management report is to provide business owners and leaders with financial and statistical information that assists in making the right operational and strategic decisions.
Unlike financial reporting, a structured approach is not required when preparing management reports. As the objective of the report is to assist business owners and leaders, any approach or layout that provides management a clear and accurate view of how the business is doing, can be used. It is for this reason that management reports will often include graphical representations of key financial information.
Management reports are by their very nature bespoke. They are created solely to assist in decision making which means that financial information, financial ratios and key statistics can be recorded, calculated and presented in a range of different formats if it is deemed to be useful and insightful to the management team.
For example, if you are operating out of multiple locations then you may wish to see a section in your management report that compares the revenue and profitability of each location. Another example would be tracking your revenue to wages ratio to ensure that you are maintaining your margins and remaining profitable as you grow.
Management report details
As outlined earlier, a management report will include additional information above and beyond the standard Profit and Loss, Balance Sheet and Cash flow Statement.
A major benefit of a management report is the graphical representation of information. The following are examples of information that can be presented in a graphical format:
- Revenue trends
- Profit trends
- Net cash flow trends
- Cash flow waterfall
- Cash conversion (ability to convert revenue into cash)
- Net asset movements
- Revenue to wages
Which report do you need?
You may be wondering which report you need and the answer is both. Financial reports and management reports both serve purposes and are both useful. Although there is often no obligation for management reporting, if you are not currently using management reports and want to better understand your numbers and be further empowered to make the right decisions, then we would encourage you to implement a management reporting system.
How we can help
Hailston and Co has extensive experience in preparing and presenting management reports to business owners and leaders.
If you are interested in learning more about how management reporting can help you and your business, please contact us for an initial obligation free consultation.