Business leaders, take heart. If you don't have a head for spreadsheets or if you have to dig into several reports to get critical information you need to manage your business, you're not alone. Many entrepreneurs and business owners are frustrated by these circumstances. They want to know as quickly as possible where the numbers stand so they can dive right back into their most important job: growing the business.
The hunger for real-time information that's easy to digest has fueled a movement among savvy business leaders toward using various types of dashboards.
That qualifier, "various types," is critical. There's no one-size-fits-all dashboard for every business or every business leader. The numbers that matter most to you, also called key performance indicators (KPIs), might not matter as much to the leader of a different type of business or even to a leader in the same field but with a different personality or approach.
The key to key performance indicators is to figure out which ones matter most to you personally.
Building a Custom Solution
Many business leaders and executives find they need to partner with a trained professional on the bookkeeping side of the ledger to determine and implement KPIs that will help them improve profitability and financial performance. It takes a detailed financial examination of your company's data to determine whether your KPIs should include, say, monthly sales, monthly operating income, revenue per transaction, the number of leads, the closing rate or something else.
Think of KPIs as a weather report for your company. Temperature alone isn't always a reliable indicator of your comfort level. A calm, 60-degree day with full sunshine is far more desirable than a 75-degree day with driving rain and hurricane-force winds.
The key indicators of your company's financial weather usually include a balance sheet, along with profit & loss and cash-flow statements. Depending on your business, your dashboard could include metrics like these:
- Revenue and margin per transaction: The amount of money you're taking in, minus the cost of goods sold, for each sale.
- Breakeven revenue and fixed cost: The amount of money you need to take in to cover your known expenses.
- Percentage of A/R past-due balances for more than 30/60 days: How many of your customers are overdue in paying their bills?
- Inventory months on hand: If you stopped adding to your inventory, how long would it last?
Which Type of Forecast Do You Prefer?
Just as some people only want to know whether they should bring an umbrella to work that day, while others demand a detailed 10-day forecast, you need to work with your bookkeeper to build a dashboard that's just right for you and your business.