Management accounts commentary generator

How to use it with Xero

1. Profit and Loss. Run it for the period with one comparison column (previous month, the same month last year, or budget via the Budget Variance report). Copy the totals for income, cost of sales and operating expenses into section 2.
2. Cash. Take the closing bank balance from the Balance Sheet or the Bank Summary for the same date.
3. Receivables and payables. The Aged Receivables and Aged Payables summaries give the totals and how much is overdue.
4. Explain. Add one or two lines on why the numbers moved. Use the checklist under the commentary to see what a reader is likely to ask.
5. Package it. Copy the text into your email, or export your Xero report pack as a PDF, attach it in section 5 and build one file with a cover page and the commentary at the front.

If you have not set up a pack in Xero yet, our guide on sending a monthly management pack from Xero covers which reports to include.

What good management accounts commentary looks like

Commentary is the part of a management pack most readers actually read. A director who will not open a Balance Sheet will read five sentences that tell them how the month went. Good commentary tends to share a few habits:

• It leads with the answer. Profit or loss, and how that compares with last month or budget, in the first sentence.
• It gives amounts and percentages together. "Up 12%" on a small number can be trivial; "up £900 (12%)" lets the reader judge.
• It explains, not just repeats. The figures are in the reports. The commentary's job is the why: a new customer, a price rise, a bill posted late.
• It is short. Half a page to a page is usually enough for a small business. Detail belongs in the reports.
• It ends with what happens next. A specific action (chase these three debtors, review this cost) gives the reader something to agree or disagree with.

Variance commentary examples

The difference between commentary that informs and commentary that only restates the numbers is usually one clause.

Restates the numbers	Explains them
Revenue increased by 9.5% compared with last month.	Revenue rose £7,300 (9.5%) on August, mainly from two new wholesale accounts that started mid-month.
Gross margin decreased to 44.1%.	Gross margin fell from 46.0% to 44.1% after the carrier's freight increase on 1 September; prices to customers have not yet changed.
Wages were over budget.	Wages were £2,100 over budget because of overtime to cover two staff on leave; this should not recur in October.
Cash decreased in the month.	Cash fell £6,700 despite a profit, because customers owe £8,400 more than a month ago and the quarterly VAT or GST payment went out.
Debtors have increased.	£18,700 (30%) of what customers owe is overdue, most of it from three accounts we are now chasing weekly.
Other costs were higher.	Software costs include £1,200 of annual subscriptions paid upfront in September; the monthly run rate is unchanged.

The examples above use made-up figures to show the pattern.

Checks before the pack goes out

Commentary built on unreconciled figures is worse than none. Before writing anything:

• Bank accounts are reconciled to the period end, and the bank reconciliation report has no outstanding items older than about two weeks. In that guide's example, two old items (a £640 duplicate supplier payment and a £1,150 receipt that never arrived) had the books £1,790 out, enough to change the month's story.
• Supplier bills for the period are in (a missing bill flatters gross margin).
• Payments from customers are matched to invoices, so the overdue figure is real.
• Large one-off payments such as annual insurance or subscriptions are either spread across the year or called out as one-offs.
• The comparison period has not changed since it was last reported. If it has, say so.

Cover pages for Xero reports

Inside Xero you can add text blocks and notes to a Management Report or custom report pack, and report publishing styles can carry a logo, border colour and footer on exported PDFs. A fully customisable cover and contents page (with a company number, ABN or NZBN, or practice branding) is a long-standing request on Xero's product ideas forum. What you can change depends on your version of reporting, so check your own file. When you need more on the front page, section 5 of this tool builds a cover page with your logo, the business name, a registration line, the period and who prepared it, then places your exported Xero PDF behind it. More on this in Xero management report: cover page, notes and commentary.

For wording ideas, see variance commentary examples. The "days of revenue" figure the tool works out uses the same idea as average debtors days in Xero's Executive Summary (receivables divided by sales, times the days in the period); see the Executive Summary explained.

Questions