Management control - CARAVATI PAGANI - Dottori Commercialisti Associati

Management control is a different process for every business. Through the reorganisation of the company’s accounting data, the use of extra-accounting data and the assumption of reasoned future hypotheses, it allows the entrepreneur and all decision-makers to formulate an effective strategy. This is based on the constant monitoring of business drivers aiming to anticipate possible criticalities in order to avoid having to take action when it is too late.

MANAGEMENT CONTROL, THE ADVANTAGES OVER FINANCIAL STATEMENTS

The annual report is the annual summary of the company’s economic events and by definition is “postponed” by more than a year with respect to the first events.

In Italy, this document is the basis for the calculation of taxes and is mainly used

• by credit institutions, when granting credit and/or loans;
• by creditors, in order to verify the company’s solvency;
• by the tax authorities, in order to verify the correct starting point from which taxes are calculated.

The main limitations of the annual report, which make it not very usable from a management point of view, are due to

• the rigid layouts imposed by the Civil Code, which often fail to highlight fundamental data for correct management reporting;
• the late preparation of the document with respect to the entrepreneur’s management needs.

PLANNING AND MANAGEMENT CONTROL OF ACCOUNTING RECORDS, HOW TO SORT DATA

The first obstacle to overcome is the reorganisation of data according to the different company needs. CARAVATI PAGANI, starting from the data generated by the general accounting extractions, prepares an intervention plan that involves:

• analysis of the company’s business and identification of the different Business Units;
• the analysis of the company’s chart of accounts;
• the classification of sales revenues in the individual Business Units;
• the classification of costs and their allocation to individual Business Units through the use of specific drivers;
• the availability of updated data with greater frequency, avoiding delays in preparation and the company’s effort to prepare them.

Management reports – budget and forecast

The organisation of data and compulsory accounting records according to the management purposes of each company and each decision-making figure within it is the first step. Then, a consultant of the Firm will prepare, evaluating the contents and the most relevant KPIs, a management report mainly composed of:

• reclassified balance sheet at the reporting date and historical comparison with one or more past years. This document, if monthly or quarterly, allows the company’s performance to be closely monitored;
• comparison of the reclassified balance sheet with the budget. This last one is also prepared with management logic thanks to the support of the Studio consultant;
• forecast at the reporting date, i.e. an update of the budget with the final data available and the updated prospective information;
• graphs and tables to provide an immediately understandable and easy-to-read output (“One Page” dashboard).

THE USE OF MANAGEMENT REPORTING IN BUSINESS PLANNING AND MANAGEMENT CONTROL

The management report prepared on a monthly or quarterly basis is used by both the entrepreneur and company decision-makers for:

• analysis of the profitability of the various Business Units and analysis of the associated margins, as well as changes measured over time;
• analysis of deviations from forecasts made in order to improve their assumptions and hypotheses in the budget, identifying the most important KPIs;
• analysis of current and future financial management;
• identification of critical issues that are difficult to identify without an interim and comparative management situation;
• pricing and marginality analysis of individual products;
• other ad hoc analyses through the implementation of specific reports.