Management control for an SME

Many Swiss SMEs keep impeccable accounts but run the company on gut feeling. Accounting tells the past for the tax authorities; management control serves to decide the future. It is not a luxury for large enterprises: even a small company that wants to grow, defend its margins and not run out of cash needs a few well-chosen tools to understand what is really happening and to act in time.

Accounting and management control are not the same thing

Financial accounting records transactions and produces the income statement and the balance sheet for legal and tax obligations. It looks backwards and reasons for the company as a whole.

Management control (or controlling) uses the same data but reorganises it to decide: by product, by customer, by job, by department. It looks forward, compares what happened with what was planned and serves those who must take operational decisions. The two functions integrate with each other: without orderly accounts there is no reliable control.

The budget: giving the numbers a target

The first tool is the budget: the translation into numbers of the year’s objectives. You do not need a complicated model; it is enough to estimate revenues, variable costs, fixed costs and investments realistically, month by month. The budget becomes useful when you compare it with actual data (variance analysis): the difference between planned and actual indicates where to intervene, well before the problem reaches the financial statements.

Cost accounting: knowing where you earn

The income statement says how much the company earns overall, not where. Cost accounting (by cost centre and costing object) answers decisive questions:

• which products or services are truly profitable;
• which customers or jobs absorb more resources than they yield;
• how indirect costs are distributed across activities.

Many SMEs discover, when doing this work, that a portion of turnover generates little or no margin, while a minority of customers sustains the profits.

The contribution margin: the compass for decisions

A simple and powerful tool is the contribution margin: revenue minus variable costs. It indicates how much each sale contributes to covering fixed costs and generating profit. Reasoning in terms of contribution margin helps to:

• set prices consciously;
• decide whether to accept a job at a reduced price;
• identify the break-even point, i.e. the minimum turnover needed to cover fixed costs.

It is often the first indicator to introduce in an SME, because it immediately changes the quality of commercial decisions.

Cash flow: liquidity before profit

A company can be profitable and still run out of cash. Profit and cash do not coincide: receipts and payments follow different timings from revenues and costs. That is why management control includes liquidity planning: a forecast, even a simple one, of the coming months’ inflows and outflows. It anticipates cash strains, avoids costly overdrafts and allows investments and financing to be planned calmly, not in an emergency.

Few KPIs, the right ones

Management control does not mean producing dozens of indicators. Better few KPIs tied to the company’s real objectives, for example:

• gross margin and contribution margin;
• turnover per customer/product and its concentration;
• average collection times for receivables and payment times to suppliers;
• available liquidity and short-term projection;
• budget variance on the main items.

An essential dashboard, updated regularly, is worth more than a giant report that no one reads.

Reporting: cadence and recipients

Tools are useful if they produce decisions. Good reporting is:

• regular (monthly or quarterly, depending on size);
• concise, with a few commented numbers;
• action-oriented, not merely descriptive.

For an SME a periodic meeting is often enough, in which four or five indicators are read together and the corrective measures are decided. The discipline of cadence matters more than the sophistication of the tool.

Where to start

You do not need to implement everything at once. A realistic path for a small company:

1. put the accounts in order as a reliable data base;
2. build a simple annual budget;
3. introduce the contribution margin by product/service;
4. start a liquidity forecast over a few months;
5. define a few KPIs and a fixed reporting cadence.

Each step produces value straight away, without waiting for a complete system.

Mistakes to avoid

• Confusing accounting and management control.
• Building a budget and never comparing it with actual data.
• Looking only at profit while ignoring liquidity.
• Producing too many indicators and no decision.

How we help you

We help SMEs turn numbers into decisions: budget setup, cost accounting, KPI dashboards, liquidity planning and reporting tailored to the size of the company.

Do you want to run your business with the numbers and not on gut feeling? Discover the services of the capital division and build a management control system suited to your SME.