Monthly reporting you can rely on


If you complete monthly reporting for your business, then you are to be congratulated as it is such a proactive way of managing your business. 

Structured reporting gives you timely information, and it allows you to break down your annual results into more bite-sized chunks, so you can focus on achieving monthly goals.

If you focus solely on the end of year results, you may be missing the opportunity to increase your profit throughout the year. The problem is that by the time your end of year accounts are completed, you are more than likely 15 months down the track from the start of that financial year.

However, if you are going to rely on monthly management reports to track your progress, you need to ensure the reports are correct and timely.  By this I mean:

  • There is a crisp cut off (the last day of the month).
  • Bank accounts are reconciled (relatively easy with cashbooks such as Xero and MYOB).
  • Suspense accounts are cleared out.
  • Invoicing for the month complete and Accounts Receivable balanced.
  • All Accounts Payable entered and reconciled.
  • Closing stock and Work In Progress (WIP) up to date and correct.
  • End of month adjustments (journals) completed.

While your reconciled cashbook forms the foundation for monthly reports, it’s important to note that when your chartered accountant completes your end of year financials they will complete a series of journals to ensure the correct profit is reported for the 12 months.  These are usually referred to as balance day adjustments.  The same applies for your monthly management accounts: a number of end of month adjustments (journals) need to be made to ensure the monthly profit is calculated correctly.

Just think of a year broken up into 12 pots (12 months).  Each pot (month) needs to reflect the income and expenses that relate to that month.

While you make payments for expenses such as ACC, rates and insurance at various stages throughout the year, the expense will most probably relate to more than one month.  For instance, rates may cover three months, ACC and insurance payments may cover 12 months.  Some expenses are paid in advance and others in arrears.  An allowance for depreciation is another adjustment to monthly accounts.

If you have staff, one of your biggest outgoings is likely to be wages and salaries – without making end of month adjustments, you will overstate your wages in some months and understate them in others.  Let’s look at a very simple example to illustrate what I mean:

You pay out approximately $15,000 per fortnight for wages During the month of April, you complete three pay runs on 2 April, 16 April and 30 April Your cashbook will record this as 3 x $15,000 = $45,000 for the month. With adjustments, the cost allocated for April would be more in the region of $32,500. [26 fortnights x $15,000, divided by 12 months]

Note:  this is just to explain the concept – in reality the calculation would be based on days and a  little more exact! An adjustment for leave entitlements should also form part of this process.

As another example:  if you pay your business insurance in one lump sum of say $17,000, you should be allocating one twelfth (approx. $1,416) across the 12 months.

You need to have confidence in the figures that are being reported and you need to receive the information in a timely manner.  There should be a clear expectation of when the end of month reports are to be completed by, cut-off needs to be crisp and you need to be notified when the information is ready for your review.  If end of month hasn’t been finalised correctly, you may be looking at incomplete and incorrect reports. This can lead you up the garden path.

Once you have mastered the end of month management accounts process (timely and correct), you can then start focusing on your suite of management reports including a dashboard with key performance indicators – something I will discuss later.    

This article is to provide you with the general idea of how end of month reporting works.  Making adjustments (and reversals) correctly can be quite confusing so it would be best to speak with your advisor/accountant to establish a robust process to follow.


About Author

Brenda Williamson

Brenda Williamson runs business advisory service Brenda Williamson and Associates www.bwa.net.nz