Management accounts commentary examples: each weak line rewritten to name its cause

A weak line repeats the table or describes the movement with an adjective. A strong one does three things in a sentence or two: it gives the size of the movement, says what it is measured against, and names why it happened. If something is being done about it, that goes last. Everything below follows that shape.

• Turnover — price

  Harlow & Pike, a kitchenware wholesaler

  Weak: Turnover was £612,000 this month, which is up on last year.

  Strong: Turnover rose 9% on May last year to £612,000. Volumes rose 1%; the rest is the 8% list-price increase from 1 April holding, with no customer lost over it.

  Up on last year is visible in the table. The reader needs to know whether more was sold or the same was sold for more, because only one of those lasts.

• Gross margin — input costs

  Fenwick Joinery

  Weak: Gross margin was down this month due to cost pressures.

  Strong: Gross margin fell 3.5 points to 30.5%. Timber rose 12% in February, and the fixed-price contracts signed in the autumn cannot pass it on; the two largest end in June.

  “Cost pressures” names no cost. The rewrite says which cost, why the price could not follow it, and when that stops.

• Gross margin — mix

  Brightwater Dental Group

  Weak: Revenue held steady, but profit was lower than last month.

  Strong: Revenue was flat at £284,000, but gross margin fell 2.4 points to 41.2%: hygiene appointments, the lower-margin service, were 46% of revenue against 38% in March, while two associates were on leave.

  Flat revenue with falling profit is a mix story more often than not. Saying which work grew, and why, turns a worry into a known, temporary cause.

• Staff costs — timing

  Marlowe Freight

  Weak: Staff costs increased significantly in the month.

  Strong: Staff costs rose £38,000 on last month to £221,000. Of that, £27,000 is the annual bonus, paid each June and not accrued monthly; without it, staff costs rose £11,000, or 6%, on two new drivers.

  Separating the timing item from the underlying change is most of the work. A reader told only “significantly” will ask both questions in the meeting.

• Overheads — a one-off

  Calder Software

  Weak: Other operating expenses were higher than expected.

  Strong: Other operating expenses were £74,000 against £52,000 a year ago. £18,000 is a one-off legal fee on the office lease renewal; the other £4,000 is the new CRM licence, which recurs.

  “Higher than expected” rests on an expectation nobody wrote down. Splitting the increase into what recurs and what does not tells the reader what next month looks like.

• EBITDA — classification

  Calder Software

  Weak: EBITDA improved strongly this month.

  Strong: EBITDA was reported at £63,000, up from £41,000, but £15,000 of that is the R&D tax credit, which belongs in other income. Moved there, EBITDA was £48,000, up £7,000 on the two contracts that went live in May.

  Before explaining a movement, check the line is what it says. A reclassification is a common cause of a surprising variance, and an easy one to miss.

• Stock — timing

  Harlow & Pike, a kitchenware wholesaler

  Weak: Stock levels have increased.

  Strong: Stock rose £96,000 to £410,000 at the end of May. The supplier shipped the Christmas range in one container instead of three; it sells through by October, so the cash it holds is timing, not slow-moving stock.

  A stock increase can be good buying or bad stock. One sentence saying which saves the reader asking for an ageing report.

• Cash — the bridge

  Fenwick Joinery

  Weak: Cash decreased in the month.

  Strong: Cash fell £58,000 to £121,000. The quarter’s VAT of £41,000 and the second £23,000 instalment on the new spindle moulder went out; trading itself added £6,000.

  Cash commentary is a bridge in words: what came in, what went out, and whether trading generated or consumed it.

The companies and figures in these examples are invented for illustration.

To explain variances in monthly financial statements, test each movement against these six causes before writing a word. Usually one or two account for nearly all of it, and naming them is the explanation.

Price

Did the same quantity sell, or cost, more or less than in the comparison period?

Volume

Did more or fewer units, hours, jobs or customers go through at the same rate?

Mix

Did the share of higher- and lower-margin work change, with the total roughly steady?

Timing

Does the item belong to another month — a bonus, a quarterly bill, an early delivery?

A one-off

Will it recur? Legal fees, a disposal, a settlement or a grant usually will not.

Classification

Is the line holding what its name says, this month and in the comparison?

Marlowe Freight’s June commentary, as it would sit in the pack:

Turnover was £1,060,000, up 4% on June last year. The two contract customers won in March added the volume; rates were unchanged.

Gross margin fell 0.9 points to 22.8% as diesel averaged 6p a litre more than a year ago. The fuel surcharge in the new contracts starts in August.

Staff costs of £221,000 include the £27,000 annual bonus, paid each June. Without it, they rose 6% on last month, on two new drivers.

Nothing else moved by more than £10,000 or 10% against the comparison.

The company and its figures are invented.

It is ordered by what changes a decision, it separates the timing item from the trend, and its last line tells the reader the rest was checked. The same method in India’s words, for an MIS report, is in the guide to MIS commentary.

Magic MIS drafts commentary on the movements in each month of your management accounts. The AI writes the words with blanks where the figures go, and the calculation engine fills every blank from the computed figures. A draft that contains a number of its own is rejected before you see it, and every figure in the commentary traces to the ledgers behind it. It is paid for in prepaid credits, with no subscription, and month two is a refresh rather than a rebuild.