There are many hats to wear when you own a business. One moment you’re a salesperson, the next you’re working on customer service or human resources. It comes with the territory.
But not all hats are equally comfortable. For many entrepreneurs, the financial management hat can be a tough fit. Why? Business owners have time limitations, and the time commitment for financial management can seem too great.
A good dashboard, however, can help make financial oversight of your business time-effective. You need only spend a few minutes weekly to have a good idea of where you stand.
Key Data at a Glance
Here is a dashboard that’s designed for a manufacturing operation. It focuses on just four pieces of basic financial information:
- Sales
- Cost of goods sold
- Expenses
- Profits
Let’s assume the business is the startup of a first-time business owner. The metrics are very simple. The graphical presentation is attractive. The dashboard provides real-time figures for the current month, as well as year-to-date performance. The first metric the owner sees on the dashboard is sales – arguably an important piece of information for a new business. The current month’s sales are broken down by product, so the owner can quickly check which products are selling well and which are selling poorly. Below the monthly sales total is a bar graph of the year’s trend, which shows steady progress. At the bottom of the column is a comparison against plan, which quantifies actual versus budgeted sales.
The purpose of the dashboard is to provide up-to-date information about the key performance metrics of the business. In just a few minutes, the owner can grasp the extent of the company’s sales success (or failure, as the case may be) with insight into the products and cost characteristics most responsible for the results. Spotting trends early can help a business owner make changes need to impact the financial results.
Tracking Your Key Metrics
The dashboard example provides some key metrics for a fledgling manufacturing company. But, what if your company provides professional services? Obviously, you need different metrics for your dashboard. Each business is unique, and the metrics tracked will vary from one business to the next.
Here are some of the key metrics Trillium Financial tracks for its clients:
Profit & Loss Metrics
- Sales Growth
- Gross Profit
- Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
- Net Profit
- Fixed Overhead as a Percentage of Sales
- Sales per Full-time Employee
- Net Profit per Full-time Employee Equivalent
Balance Sheet Metrics
- Days’ Sales Outstanding (collection cycle)
- Inventory Turnover Rate
- Days’ Payables Outstanding (payment cycle)
- Debt-to-Equity Ratio
- Current Ratio
Trend Metrics
- Sales for Trailing 12 Months
- Gross Profit for Trailing 12 Months
- EBITDA for Trailing 12 Months
As you might imagine, an experienced business owner may know some of his financial ratios like the back of his hand. Even so, an owner should use a dashboard to track metrics that are important for their current financial management and most of all those metrics that drive cash flow. The metrics will likely change over time to add precision. For example, an experienced owner might know that overtime pay is the surest way to diminish the company’s profitability. Their dashboard tracks the average labor rate paid as a key business metric. A documented metric helps you spot trends that can create action.
A business may start out measuring a bunch of different metrics that are both financial and operational and eventually narrow the number of metrics down to those that are predictive and meaningful. I encourage you to develop a dashboard that helps you manage your business; after all, “What gets measured gets done.”
Let us know how we can help you develop a dashboard that works for your business.