In our last blog, we covered why tech companies need management information. In this blog, we’ll cover the what and how.
What Should Your Management Information (MI) Packs Include?
Management Information is a very broad term, so below we’ll dig into what this can include in reality:
Profit & Loss and Balance Sheet:
At the very foundational level, your management information should include your profit and loss, that is your income and your expenditure, and your balance sheet, which in the main covers your assets and liabilities. This is the very minimum, but it can be slightly enhanced by including month-on-month and actuals vs budgets comparisons.
There’s only so much you can get from a generic profit & loss and balance sheet. As each company has unique goals and objectives, bespoke Key Performance Indicators (KPIs) are often useful. These metrics range includes indicators built from your financials, such as cash runway, burn rate and recurring revenue but also non-financial metrics like customer churn and user growth, which we’ll cover in our next point. We’ve included other KPIs you may want to consider in our Tech Companies Guide to Management Reporting.
Non-Financial KPIs :
It’s crucial that tech businesses track not only financial KPIs but also non-financial KPIs. For example, let’s say you’re currently operating a freemium pricing strategy with the goal of monetising these users in the future. A simple P&L or balance sheet won’t show these users, as they’re not actually paying anything so there’s no revenue to record. However, the growth of this base is crucially important to track and helps effectively forecast future revenue growth through upselling your premium product.
Budgets and Industry Benchmarks:
Effective management information includes initial budget-setting exercises and continuous tracking of actual performance against these budgets. By identifying areas where you deviate from targets, you can promptly address any issues and strive for continuous improvement. Benchmarking against industry standards and relevant KPIs enhances your understanding of your company’s performance and highlights areas for optimization.
Forecasts & Scenario Planning:
Management Information shouldn’t simply look at historical data, it needs to also incorporate forward-looking elements. By utilising cash flow forecasts, you can gain valuable insights into your company’s future financial position. This becomes especially critical for pre-revenue or non-self-sufficient companies that may require future investments. Advanced scenario planning allows you to model different outcomes and make strategic decisions that position your tech company for success.
Leveraging Technology for Management Information:
So how can you get timely, tailored management information? If your assumption(/fear) is that this requires hours of sourcing data from different sources and data crunching in excel, you’ll be pleased to know that technology can alleviate this…
Modern technology allows you to build automated and integrated processes around your existing core cloud accounting software to give you real-time, bespoke and timely MI reporting packs. This starts from the very basic MI reports that you can get from your existing cloud accounting software to more enhanced layers of MI reporting packs built upon this. These more enhanced reporting packs can include commentary, bespoke KPIs, charts and forecasts. This provides you and your key stakeholders with the MI you need to easily understand performance, make key decisions and drive your company forward.
To discover more about the KPIs to track, the technology solutions available, and how The Smart Accountants can support your journey, we invite you to download our Smart Accountants’ Tech Company’s Guide to Management Reporting here. Alternatively, please contact us to discuss how we can support.