Here is an illustrative founder question: "We're a UK supplement brand doing just under £1m a year, mostly capsules and a couple of powders. We have just been handed our first proper set of management accounts and we do not know what we are looking at. What should we read first?" Here is the direct answer. Read the pack in one order: the basis note first, then your gross margin, then what marketing actually cost you, then the cash test. Get those four right and the rest of the pack becomes a decision-making tool. Get them wrong and the rest of the pack is decoration.
I spend my days reading management accounts for social commerce brands and teaching founders to read their own numbers. Every figure below is an illustrative example, not a client number, worked so you can rerun the maths with your own labels.
Here's the Short Version
- Read your first set in this order: the basis, gross margin, marketing, cash. The order matters because each one depends on the one before it
- Check the basis before you trust a number: sales should normally exclude VAT if you are registered, costs belong in the month they were incurred, and marketplace net payouts should never be posted as revenue
- Gross margin is sales minus the landed cost of the stock that sold, not what you spent on stock this month. Slow and expiring stock has to be written down when what it will realistically fetch drops below cost
- Read the profit and loss as a ladder: gross profit, then contribution after marketing and platform costs, then operating profit. In the illustrative month below, £75,000 of net sales produces £7,000 of operating profit, and the ladder shows where the other £68,000 went
- Profit is not cash. In the same illustrative month, the brand was about £23,000 short once its cash and expected payouts were stacked against what was already committed
- VAT and the payroll deductions withheld from staff are liabilities, not income, and employer National Insurance is a cost. On this pack the total owed to HMRC comes to £26,000, so set it aside weekly, because late payment interest runs at Bank Rate plus four percentage points
- Trend beats snapshot: three months of numbers show whether growth is paying for itself, and stock cover is the number that catches trouble first
First, What Management Accounts Are For
Management accounts are the internal pack you run the business from: a profit and loss account for the month, a balance sheet, a cash position and, if your accountant is any good, comparisons against last month and the year so far. They are not routinely filed with Companies House or HMRC, and there is no general statutory format or deadline for them. That is exactly why they matter: they are built for decisions, not for filing.
Your statutory accounts are the other document. Those follow legal and accounting rules: a private company normally files them at Companies House nine months after its financial year ends, and a first set is normally due 21 months after the company was registered. They are a history book. Management accounts are the instrument panel. A first set is usually the moment a growing brand finds out whether its accountant is reporting the business or just processing it. Here is the reading order I give every founder.
Is Your Pack Built on the Right Basis?
Before you read a single number, read the notes and ask three questions. What basis is this prepared on? Are sales shown excluding VAT? Were marketplace payouts posted as revenue or reconciled to it? Everything else in the pack inherits these answers.
VAT first, because it is a number founders often misread as profit. If you are VAT registered and selling standard rated products, VAT is not your income. On £90,000 of customer takings, the VAT inside is £15,000, so your sales line should read £75,000, with £15,000 sitting on the balance sheet as money you owe before you count the VAT you can reclaim on your own costs. If your pack shows the full £90,000 as revenue, your margin is overstated and your tax looks like working capital. It is not. That money is collected, not earned.
Second, the accruals point. Good management accounts count a cost in the month you incurred it, not the month it leaves your bank. A December ad campaign that lands on a January invoice belongs in December. A deposit paid to a supplier for a March restock belongs on the balance sheet, usually as a supplier prepayment or a payment on account, not in the month's costs. If everything in the pack was recorded when the payment cleared, you are reading a bank statement with headings, and it will always lag reality by a month or two.
Third, the one that breaks whole packs: net payouts posted as revenue. Marketplaces pay net of commission, refunds and adjustments, and when those bank receipts get posted as sales, the settlement never gets reconciled. The revenue figure ends up wrong once refunds, discounts and platform charges are handled properly, the fee invoices never make it into the books, and any recoverable VAT inside those fees goes unclaimed. Look for the words settlement report in the pack, or a reconciliation note. If your revenue simply equals the money that hit the bank, the base of the pack is wrong. So reconcile each payout to the settlement report, record revenue on the correct principal or agent basis, and claim input VAT on eligible fees where the rules and the evidence allow. We went deep on this in our post on why TikTok Shop brands fail at reconciliation.
What Is Your Real Gross Margin?
Gross margin is the first number that tells you whether the product works. The formula is simple: net sales minus cost of goods sold, divided by net sales. Most of the arguments live in what you put into cost of goods sold, though the sales line has its own rules around discounts and returns.
Cost of goods sold is the landed cost of the stock that actually sold in the month. That means what you paid for the units, plus freight, duty and the costs of getting them into your warehouse. It is not what you spent buying stock this month. If you bought £80,000 of stock at landed cost this month, and the landed cost of the units that sold was £30,000, your accounts should show £30,000 of cost, not £80,000. The remaining £50,000 stays on your balance sheet as stock, and confusing the two is a common way a young brand misreads its own margin. The full build of that number is in our post on the landed cost model for imported supplements.
One more rule inside stock: it goes on the balance sheet at the lower of what it cost you and what it will realistically fetch. If a batch cost £10 a unit to land and its expected selling price is now £7 excluding VAT, with about £1 a unit of remaining costs to complete and sell it, its net realisable value is £6, so it is held at £6, not £10. That rule matters double in supplements, where stock ages, expires and dies quietly. If your accounts have never shown a stock write down, ask why, because a growing catalogue usually contains something that needs clearing.
Then read the margin as a trend, not a score. A 60% gross margin is only good or bad next to your own plan and your own last three months. If it moved by more than a point or two without a pricing change, there are a few suspects to check: landed costs, discounting, sales mix, returns, stock write downs, and costing or reconciliation errors.
What Is Marketing Actually Costing You?
Marketing in a social commerce brand is never just the ad account. Add creator commissions, affiliate payouts, gifting and the samples that went out for content. Divide the total by net sales, and you have the share of every pound of revenue that goes straight back out to buy the next pound. In the illustrative example below, that number is 24%, and it is the line that decides everything after it.
The pack reads best as a ladder. Here is one month, with illustrative numbers for a supplement brand doing about £75,000 a month of net sales.
| The month, illustrative example | Amount | Share of net sales |
|---|---|---|
| Net sales | £75,000 | 100% |
| Cost of goods sold | £30,000 | 40% |
| Gross profit | £45,000 | 60% |
| Marketing and creator costs | £18,000 | 24% |
| Platform and fulfilment costs | £9,000 | 12% |
| Contribution | £18,000 | 24% |
| Overheads, software, admin and professional fees | £11,000 | About 15% |
| Operating profit | £7,000 | About 9% |
Read it like a founder, not an accountant. £75,000 of sales becomes £45,000 after the product cost, £27,000 after marketing, £18,000 after platform and fulfilment, and £7,000 after everything else. Contribution is the number to protect, because it is what is genuinely left after every variable cost has taken its bite. In this example, 24p of every £1 of net sales is left as contribution before overheads, and that only holds while the cost rates stay where they are. When someone asks whether you can afford more ads, the honest answer starts there.
The questions that follow are simple. Is contribution growing faster than sales, or slower? If sales grew 10% and contribution grew 4%, contribution margin fell, and it is worth finding out whether acquisition costs, channel mix or other variable costs caused it. The full ladder, line by line, is in our post on how a 7 figure supplement brand should structure their P&L.
Can Your Cash Survive the Growth?
Now put the profit and loss down and do the cash test. The bank balance is not the scoreboard, because a lot of what sits in it was never yours. Here is the same illustrative month, seen through cash.
| The cash test, illustrative example | Amount |
|---|---|
| Cash in the bank at month end | £22,000 |
| Marketplace payouts landing over the next two weeks | £12,000 |
| VAT and payroll taxes owed to HMRC | £26,000 |
| Supplier invoices and restock due in the next 30 days | £31,000 |
| Cash test result | About £23,000 short of what is already spoken for |
Run the numbers: £22,000 plus £12,000 of incoming settlements is £34,000 available. £26,000 of tax plus £31,000 of suppliers is £57,000 committed. The gap is £23,000, and it is not a crisis, it is a shipping forecast. It tells you the next restock has to come from somewhere: faster collections, staged supplier payments, or funding. We walked through the options in our post on funding inventory before Q4.
Three timing items often contribute to the gap between that £7,000 of profit and the cash reality. TikTok Shop uses delivery-based settlement periods, and many Amazon seller accounts use delivery-date-based reserves, so a strong month can include money that has not arrived yet. VAT returns and payments are usually due one calendar month and seven days after the end of the accounting period, which for most brands is the quarter, and the tax was never your money to spend in between. Late payment interest, if it ever comes to that, runs at Bank Rate plus four percentage points, which is 7.75% today. And corporation tax is due nine months and one day after your accounting period ends, so a year end of 31 December means payment is due on 1 October. If taxable profits for a 12 month period were about £84,000, with no associated companies, corporation tax comes to roughly £18,500 once marginal relief is worked through, an effective rate of about 22%.
None of this means the accounts are wrong. It means profit and cash are different clocks, and on a growing brand the cash runs out first. Stock you built, VAT you collected and marketing you paid all move before the profit turns up in a bank balance.
What Does the Trend Say?
One month is a photograph. Three months is a direction, and the direction is where the warnings live. Here is the same illustrative brand across a quarter.
| Month | Net sales | Gross margin | Operating profit |
|---|---|---|---|
| June | £68,000 | 61% | £7,500 |
| July | £72,000 | 60% | £7,200 |
| August | £75,000 | 60% | £7,000 |
Sales grew by roughly 10% across the quarter. Operating profit went from £7,500 a month to £7,000, and operating margin slid from about 11% to about 9%. Nothing in that picture is broken, but it has a direction: operating margin is falling, and the table alone will not tell you whether marketing, platform costs, fulfilment or overheads caused it. That is exactly the kind of thing a single month cannot show you, and the kind of thing the monthly pack exists to surface while it is still cheap to fix.
Then check what is parked in the warehouse. In the illustrative example, stock sits at £60,000 against £30,000 of monthly cost of goods sold, so roughly two months, or about nine weeks, of cover. On supplements, cover is not just a cash number, it is an expiry number. Review anything slow moving, seasonal or close to its date for impairment, write it down when its expected selling price less remaining costs sits below what it cost, and clear it early where you can. The accounts should show that before the feeling in your gut does. Our post on returns and expiry accruals covers the mechanics.
What Should You Ask Each Month?
Your pack should arrive to a deadline you agreed, with comparisons built in. Ten working days after month end is the target we work to, and if your current pack turns up in the middle of the following month with no comparisons, that is the first thing to fix. Then ask these five questions, every month, until the answers stop surprising you.
- On what basis is this prepared, and are sales shown net of VAT?
- What is gross margin by channel, and has it moved since last month?
- What did marketing cost as a share of sales, including creators and samples?
- How many weeks of stock cover do we hold, and what is slow or expiring?
- What do we owe HMRC today, and is it already set aside?
The answers turn the pack into a routine rather than a monthly surprise. The full monthly rhythm we run for brands is in our 12 step monthly accounting checklist.
FAQ
What should I read first in my first set of management accounts?
Read the basis first, then gross margin, then what marketing actually cost, then the cash test. Check that sales normally exclude VAT, that costs are counted when incurred rather than when paid, and that marketplace payouts were reconciled rather than posted as revenue. In the illustrative example in this post, a £75,000 month carried £7,000 of operating profit and still came up about £23,000 short once cash, expected payouts and the next 30 days of commitments were added up.
Why do my management accounts show a profit when there is no cash in the bank?
Revenue is recognised when control of the goods passes, which for most marketplace orders is delivery, while cash arrives when the marketplace settles and leaves when you restock or pay tax. Stock, payout cycles, VAT set aside and marketing spend all sit between the two, so a profitable month can still be a tight one. The answer is a cash forecast that sits next to the accounts, not a suspicion that the profit is wrong.
What is a good gross margin for a supplement brand?
There is no single number that fits every brand, because channel mix and customer acquisition costs change the answer. What matters is the trend against your own plan: if gross margin slips by more than a point or two while marketing rises, investigate it before assuming the growth is profitable. In this post's illustrative example, the brand runs at 60% gross margin, and the job is to hold it while sales grow.
The Bottom Line
Your first management accounts are not a scoreboard, they are an instrument panel. Read the basis before the numbers, follow the ladder from gross profit to contribution to operating profit, and finish every month with the cash test. Do that for a quarter and you will understand your business more clearly than bank balance staring allows. Profit tells you the model works. Cash tells you whether you get to keep going.
If you want your pack rebuilt so it actually answers these questions, that is the work we do every week for growing UK supplement brands. We are specialist social commerce accountants, and we will tell you plainly where your numbers are hiding the truth. Book a call and we will go through it with you.