| Monthly Dashboard - Key Performance Indicators |
Numbers should be a servant, not a master. Running a business without monthly financials is like playing golf without keeping score but even monthly financials are of little practical value if they aren’t telling you what you need to know about your business.Just as bad is using the numbers simply to comply with regulations – rather like driving a car by looking in the rear view mirror. More important than simply having monthly profit and loss numbers is building a financial dashboard of Key Performance Indicators (“KPIs”) that deliver key information to the CEO. From simple businesses where the owner measures the week by the cash in hand to ultra sophisticated businesses that measure everything, every business has key indicators that can tell owners and managers how they are doing.There are at most a dozen key indicators that should be collected in a weekly or monthly “flash” report. The really valuable dashboard is not limited to the usual financial ratios and will cover both financial and non-financial information. There are five separate areas, each of which provides critical information. P&L Information The P&L is the rear view mirror. From the full Profit and loss report, the most critical items for your business should be selected from the following list:
Balance Sheet InformationOne of the most significant financial shortcomings of CEOs is a failure to use the relationship between the P&L and the Balance Sheet to pick up developing trends. Pick up the items that really matter from the following list:
Revenue Predictors The financial statements show the revenue actually booked, and the key performance indicators if properly identified should get behind the sales process and provide a forecast for what can be expected to occur. The first step is to define the sales process – the steps that have to take place before a sale can take place. Usually this is a funnel where each of the following steps has less items within it:
The technique is to measure the steps along the way and then identify the numerical relationship between each step. Once this has been accomplished, then you can start to forecast future revenue from sales pipeline activities. For example, if you know that 32% of new proposals generate revenue 90 days later then if you track the level of new proposals each month you can get a much better handle on likely revenues 90 days hence.
Activity Numbers In many businesses, the underlying activity is just at important as the revenue numbers, and looking at revenue in isolation is not enough. This is particularly true in service businesses where it is essential to look at the relationship between activity and revenues – time billed, percentage of time paid for that is billed to customers, number of service calls, etc. Look behind the numbers and identify what is important from the following:
Look at activity levels in your business and see whether there is a correlation that you should be measuring. Freedom from you business indicator As well as financial indicators, there are a number of non-financial areas that need to be watched and it is important to identify the key indicators that need to be tracked on a consistent basis. Look at your goals and identify what you can track. Some examples might include:
Put them on your private dashboard and measure your progress.
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