You want to improve business performance? It all starts with knowing what is important and then measuring and tracking progress. If you can't measure it, you can't improve it.
Enjoy!
Track Performance to Improve Performance
As with many things in life – where we place our attention is what will change. But, if you try to focus on too many things at once, nothing gets done. The same is true for monitoring your business’ financial performance.
Monitor and focus your attention on those few key metrics that drive your business’ health through a dashboard tailored to your needs.
A good dashboard – often no more than one page, is a powerful visual of graphs and other data that provide a snapshot of the key components of your business. It monitors trends and tracks performance against goals, providing the ability to course-correct mid-year.
A customized monthly dashboard should focus on the key drivers of your business and help you quickly and easily assess the health and trajectory of your company. Here’s how:
Perform a Financial Review
First, take a look at your current financials and make sure they are in order. If there are errors, fix them. Make sure the balance sheet is correct (you’d be surprised how many businesses do not have proper balance sheet accounting).
Make sure your chart of accounts is structured to help you manage your business. Do you have expense items in your Costs of Goods Sold, or vice versa? Are the categories well-defined and consistently used?
Make accounting changes before the new year. You need a good clean starting point to move forward.
Develop Key Performance Indicators
Every business has key metrics which underlie performance. Which few are really important to your company’s performance?
Financial Ratios – current ratio, inventory turns, receivable days
Operations – billable hours, revenue per transaction; inventory of key components
Customers – referral sources, sales for top customers, retention rate
Service – call volume; complaints; speed to resolution
People – hiring of key employees; safety standards
Strategy – progress against specific initiatives
Don’t go overboard in picking the metrics. Keep an eye on the big picture while laser focusing on those few metrics that have the greatest impact to your success.
Set Goals and Track
Lastly, it is time to create your dashboard. Decide which metrics are the most important for your business, and track them.
At a minimum, a dashboard should include revenue, gross margins and net income. Beyond the basics, it depends upon the information you need to run and improve your business or areas that need your special attention.
Graphs charted over time not only provide a visual of trends but also highlight variances from budget (or other goals). Trends help you understand progress over time while variances identify areas to course-correct.
If you have access to industry benchmarks, then they can be used to help you set goals. The Risk Management Association publishes an annual report on financial ratios by industry. Trade associations often publish key metrics for their members. These sources can be used to help set financial and operating targets.
Lastly, be sure your dashboard is in an easy-to-use Excel spreadsheet. You will want to update it monthly.
Design your dashboard to meet your needs and objectives. Set priorities, define goals and track progress.
If you would like assistance creating a customized dashboard, please give me a call. I would be happy to help.
We deliver full business valuations reports and related services for a variety of reasons, including exit planning, divorce and potential transactions.
We provide financial services for those in the process of divorce and needing to untangle the complexities of a financial separation. Member of King County Collaborative Law.
