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Why putting a reporting dashboard in place is so important
Achieving improvement is very difficult without measurement. If you don’t know where you are, then it’s hard to get to where you want to be. Running a business purely on “gut feel” without measuring and tracking performance is like traveling in unknown territory without a compass or a map.
In a plane, the dashboard allows the pilot to see critical information needed to effectively operate at-a-glance—how fast the plane is moving, how much fuel is left, and whether the engine is overheating. In the same way, tracking your key business performance metrics on a reporting dashboard gives business owners the most important information needed to manage and improve the profit engine.
A business reporting dashboard is a short report – usually one page long – that allows a business owner to quickly monitor, track, and study the financial health and performance of the business by reviewing a mix of financial and non-financial key performance measures. Many people use the term dashboards, scorecards, and flash reports interchangeably.
To drive more profits from your business, you should consider getting help defining your key performance metrics and putting a reporting dashboard in place to manage your profitability and take your business to the next level. Tracking your key performance metrics on a reporting dashboard may impact your bottom line because it will help you:
- Actively monitor your financial health and manage your assets, liquidity, debt, and profits;
- Better understand the patterns of your business and trends so you may adjust what you buy, how much you buy, what you produce, and where you focus your sales resources;
- See potential problems and opportunities before they happen, while you still have time to do something about them;
- Identify and eliminate bottlenecks and constraints to improve the speed and profitability of your operating cycle.
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"Skilled pilots are able to process information from a large number of indicators to navigate their aircraft. Yet navigating today's organizations through complex competitive environments is at least as complicated as flying a jet. Why should we believe that executives need anything less than a full battery of instruments for guiding their companies? Managers, like pilots, need instrumentation about many aspects of their environment and performance to monitor the journey toward excellent future outcomes." - David Norton & Robert Kaplan, authors of The Balanced Scorecard (6) |
Practical actions you can take to get a better handle on your vital signs
Despite the obvious benefits, many business owners do not regularly track their vital signs with a business reporting dashboard. There are several reasons why. First, it’s hard for busy owners to systematically collect, track, and monitor the key performance indicators they need to run their businesses. Standard financial reports don’t tell the entire story about the health and performance of a business. Often the right information needs to be collected from many places – such as accounting software, online banking web sites and sales databases. Even if the information is being collected, owners do not review it frequently or systematically enough. In fact, the last word most owners would use to describe themselves is “systematic,” according to a recent survey by U.S. Bank.(3)
There are several practical steps you can take today to get a better handle on the vital signs of your business health and put in place a dashboard to monitor and tune up your firm’s performance.
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Practical Steps You Can Take To Better Track And Control Your Cash
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Define the vital signs that define good business health for your company
By monitoring four essential vital signs - body temperature, pulse rate, blood pressure, and respiratory rate - health professionals can assess the most basic body functions of their patients and get an early warning to potential health problems.
The key to an effective reporting dashboard is to pick the right numbers to monitor the health of your business. In recent years, web based reporting dashboards have been popularized by business intelligence software providers. However, too many businesses confuse buying dashboard software with the harder task of defining a clear set of key performance indicators for the business.
Before you buy software, your first focus should be defining the most important vital signs that will help you monitor your business health, manage your profitability, and take your business to the next level. A good way to start is to ask yourself some questions that will help you tell the story of your business in numbers and define key performance measurements that align with your business goals.
- What are the secrets underlying our future business success?
- How can we make our business strategy measurable?
- What are the leading indicators of our future performance?
- Where can we learn from history to grow profits and avoid waste?
A smart way to quantify your business performance is to define key performance metrics that track the steps of your business operating cycle. Done correctly, your business reporting dashboard should allow you to see at-a-glance how fast your business operating cycle is running, how much cash you have on hand, how much mileage you are getting from your working capital, and whether the profit engine is overheating.
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Creating A Dashboard To Help You Monitor Your Business Operating Cycle
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The operating cycle is the length of time, in days, that it takes to purchase, produce, and sell a product or service ending with the collection of cash. In this way, your business is just like an engine. The faster and more efficiently the operating cycle turns – the better your business runs. Creating a dashboard that monitors the performance of every aspect of this operating cycle may improve your bottom line by allowing you to change collection terms and policies, speed up production processes, and eliminate waste. By monitoring these vital signs over time, you will better understand the operating patterns of your unique business and find opportunities to tune up your business performance. |
Create a dashboard report with your key performance indicators
There are no hard and fast rules for what to include on your dashboard. For example, your dashboard can include a mix of financial and non-financial metrics. It can be forward looking or track historical trends. To help you define your key vital signs, consider the following key performance indicators for your dashboard:
- Financial metrics that help you actively monitor your financial health and manage your assets, liquidity, debt, and profits;
- Leading indicators of future performance such as measures of market demand, sales pipeline metrics, and anticipated bookings;
- Historical measures that help you understand the patterns and trends of your business so you may adjust what you buy, how much you buy, what you produce, and where you focus your sales resources;
- Early warning indicators that help you see potential problems and opportunities before they happen, while you still have time to do something about them;
- Operating process measures that help you anticipate, identify, and eliminate bottlenecks and constraints to improve the speed and profitability of your operating cycle.
One key to success is to keep things simple. As a practical matter, try to limit your dashboard to no more than a dozen key metrics. Before spending time programming web based dashboard software, try creating your first dashboards on paper, using a spreadsheet software program. To help you get started, Nine Financial Metrics That Matter To Your Peace Of Mind And Business Health are listed and defined in this article.
An Example of a Business Performance Dashboard
Get help putting in place a monthly reporting discipline
It should not take a rocket scientist or hours of work to create your business performance dashboard. It will, however, take business discipline to make sure you create and review your business dashboard on a regular basis. The key to success is making dashboard reporting an internal competency and getting the right help.
Once you have established your key performance metrics, try to assign someone to assemble and produce your dashboard on a monthly or weekly basis. Creating a dashboard requires a person to collect information from many places, including:
- Financial systems like online banking, payment, and payroll systems
- Accounting systems like QuickBooks or Sage PeachTree software
- Sales databases like SalesForce.com.
A good candidate for creating a dashboard is a bookkeeper who is comfortable using your accounting system or a computer savvy employee who is good with numbers and knows how to use spreadsheets or business analytic software.
If you don’t have an internal person with the skills to help you set up and populate a business performance dashboard, look outside your organization to your accountant or a business advisor from SCORE to help you define, set-up, assemble and interpret your dashboard. Share your dashboard with board members and business partners who can give you additional perspective on what you are seeing. For example, your banker should be able to help you compare your dashboard results to peers in your industry by providing you external benchmarks of performance.
A practical idea is to provide your accountant access to your financial systems so that they can compile a dashboard report to track the key indicators of financial health. The broad adoption of online banking, electronic payments, and accounting software makes it much easier to assemble detailed cost, sales, and financial statement information electronically. For example, if you have significant labor expenses, it is possible for your accountant to use the timesheet and payroll expense information in your payroll service or solution to help you track, manage, and allocate your labor costs on a spreadsheet. Consider giving your accountant tiered access to your online banking and accounting system to assemble a business performance dashboard report. Schedule regular monthly meetings or teleconferences to review performance against monthly targets for budgeting expenses, generating sales, or maximizing cash flow and discuss what these numbers mean to your business.
Look for ways technology can make monitoring your vital signs faster and simpler
Once you have assigned a person responsible for compiling your dashboard on a weekly or monthly basis, technology can make monitoring your vital signs faster and simpler.
There are a number of simple ways you can use technology to extract and report information from the accounting, CRM, and banking data you already have.
- The accounting software company QuickBooks works with several web based business intelligence tools – such as Technology in a Box and Qvinci – that can be set up to pull current or real time data directly from QuickBooks data files into a dashboard report.
- Microsoft’s development partners have created dashboard templates for Microsoft Excel business users to help them to create professional one-page magazine quality business dashboard reports. Users can easily manage and report data in Microsoft Excel in very effective ways and create customized business dashboards.
- The sales software company Salesforce.com has a range of pre-packaged reports that can create a sales pipeline and forecast charts and metrics embedded in their software. For more sophisticated reporting, their development partners have developed a variety of free, pre-built dashboards – such as the Lead and Opportunity Management dashboard – created by Force.com Labs. You can customize them to meet your business needs. Use these dashboards to track and measure adoption, sales productivity, campaigns, lead generation, and service and support.
- Many online banking solutions make it easy to export your payables, receivables, and balance information into QuickBooks® or a spreadsheet software program so you easily compile and calculate the metrics for your dashboard.
In the last several years, a wide range of web-based dashboards has appeared for small businesses. They can help you aggregate a wider variety of business data from bank accounts, investments, QuickBooks, and other sources and place them in an attractive easy-to-navigate interface where you can quickly see your income, spending, recent activity, and your financial runway. These solutions only make sense if you have the skills to take advantage of them and don’t fall into the trap of overcomplicating your scorecard by adding too many measurements to your reports simply because you can collect the data.
How U.S. Bank can help
U.S. Bank has solutions, resources, and advice to help you put the right measurement and reporting systems in place. Ask your business banker about:
- Financial solutions that provide the information needed on your reporting dashboard including exporting financial information into your accounting software and reports that track your spending. For example, an online banking account will allow you to track all of your spending – including checks, debit cards, and credit cards – online and store spending data for 18 months. This makes it easier to create a reporting dashboard by exporting your spending information into your accounting systems, a spreadsheet, or even dashboard software. U.S. Bank also offers proprietary online Scoreboard reports that help visualize, compare, and control your spending. By using business credit cards or commercial cards you can get customized reports that track and manage expenses by supplier, category, location, employee and time period. To learn more: www.usbank.com/cgi_w/cfm/personal/sub_global/usb_internet_banking.cfm">http://www.usbank.com/cgi_w/cfm/personal/sub_global/usb_internet_banking..." target="_blank">Online demo (B).
- External benchmark data for your industry to help you compare your financial performance and spending to other companies in your industry. Your banker can help you find financial and operating benchmarks for peer firms in your specific industry that can help you better understand how well you are performing.· Connecting you to resources to help you set up and manage your business dashboard, including introductions to local financial experts who can help you define your key performance metrics and CPAs who can help enable and manage your dashboard. Your banker also has instructions and workbooks to help you create your own scorecard. To learn more: https://scoreboardtest.usbank.com/approot_sb/sbdemo/scoreboard.html" target="_blank">Small Business Report Card (A)
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Nine Financial Metrics That Matter To Your Peace Of Mind And Business Health When creating your reporting dashboard, consider including these core financial measures. They are key indicators of how well you are managing your assets, liquidity, debt and profits. To learn more about how to calculate and use these metrics to monitor your business health, ask your accountant or get a copy of the https://scoreboardtest.usbank.com/approot_sb/sbdemo/scoreboard.html" target="_blank">Small Business Report Card Report from U.S. Bank (A). 1. Accounts receivable turnover– Much of your working capital is tied up in the collections portion of your operating cycle. The accounts receivable turnover ratio shows you how many days it takes to collect the money owed to you by customers. To calculate this, you divide accounts receivables by your net sales. The fewer days it takes to collect, the better you are at managing collections and the more cash you have to fuel your operating cycle. 2. Inventory turnover– A lot of the working capital in your operating cycle goes to fund current inventory assets in warehouses, on store shelves, or on the production floor. This metric shows you how many days it takes to sell (or turn over) this inventory into cash. To calculate this metric, divide inventory by cost of goods sold. The faster you can sell your inventory, the better you are managing your inventory assets. Inventory carrying costs can be thousands of dollars a day. So every day counts. 3. Working Capital– Cash is the life blood of the business. Every business needs some minimum level of cash to run day-to-day operations and pay current bills. The working capital formula helps you ensure you have enough cash on hand to fund these daily operations. To calculate this metric, subtract your current liabilities from your current assets (cash, account receivables, and inventory). To keep your business running without getting extra money, the number must be positive. The bigger the number, the better you will be able to sleep at night. 4. The Acid Test- This is a quick test of how liquid or “cash rich” your company is. The acid or quick test looks at how much cash your company can generate from the current assets on your balance sheet. You can calculate this by subtracting your inventory from your other liquid assets such as cash, money market funds, and loans to customers. Then divide by current liabilities (what you owe in the short term). Ideally you have more liquid assets than bills, giving you a cash cushion to help your business to weather the ups and downs without running out of cash. 5. Current ratio– Many businesses need short-term working capital loans to fund long operating cycles, seasonal revenues, or the unexpected costs of doing business. The current ratio is a metric that lets you know you are in a strong position to pay back those loans and are not over extending your credit. To calculate your current ratio, divide current assets by current liabilities. To be safe, you want to have at least twice as many current assets as loans outstanding. 6. Leverage ratio– Some businesses require big investments or long-term capital to meet their profit, growth, or expansion goals. For example, a business that needs commercial real estate, large fleets of trucks, or expensive machinery to run needs more capital than a small services business. The leverage or “debt-to-worth” ratio lets you know if your business has enough capital to achieve its goals. To calculate the leverage ratio, divide your total liabilities by your total capital (the investment capital and retained earnings in your business). If you have more than three times the loans outstanding as you have equity capital, you may be over leveraged and need more investment to stay strong. 7. Payables turnover– One practical way to get the goods and materials critical to your operating cycle running with as little cash as possible is to borrow from your suppliers. As you do this, you will grow accounts payable. Your accounts payable turnover metric shows you how quickly you are paying your suppliers back. To calculate your accounts payables turnover, divide your accounts payables by your purchases in any given year. If your supplier credit terms come with high interest rates or penalties, you do not want this number to be too high. If on the other hand, you have a long production cycle and are tight on cash, you do not want the number to be too small. In either case, it is an important vital sign to track. 8. Profit margins – Keeping a sharp eye on profits is important. It is easy to confuse sales with profits, particularly when you sell a variety of different goods or deliver customized services. Also, profits can vary over time if demand weakens, sales boom declines, or your suppliers pass along rising costs of energy and health care. Calculating profit margins on sales shows you the percentage of net profits for every dollar of sales in your company. Simply divide net profits by net sales. Every industry has a different profit equation, so it is a good idea to compare this number with other companies in your industry to see how well your profitability stacks up. 9. Debt service– Out of necessity most businesses are built on “sweat equity”, where owners essentially trade in their salary as business capital to help get their business started. Ultimately you are in business to make money. Debt service ratio measures your ability to pay your debts as well as pay yourself. To calculate your debt service ratio, add your net profits with your depreciation deduction. This tells you how much cash your company generates every year. Then divide it by the current portion of your long term debt (the amount due this year). Ideally your cash from profits should be double the annual interest payments on your long term loan obligations. |
Appendix
Citations & References
- Understanding and Controlling Cash Flow Report, U.S. Small Business Administration Financial Management Series, 2009
- The 2010 Federal Reserve Payment Study – Non-Cash Payment Trends In The United States 2006-2009, The Federal Reserve System
- U.S. Bank survey of 2,725 small business owners, 2010
- Study of Consumer Payment Preferences, BAI Research & Hitachi Consulting, November 2010
- Bizstats Industry Financial Benchmarks for S Corporations, 2011
- Robert S. Kaplan and David P. Norton. The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press, 1996.
- Eliyahu M. Goldratt and Jeff Cox. The Goal: A Process of Ongoing Improvement. North River Press, 2004.
- Robert Kikosaki. Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not. Plata Publishing, 2011.
- Bob Fifer. Double Your Profits in Six Months or Less. Harper Business, 1995.
Links to resources and papers
- https://scoreboardtest.usbank.com/approot_sb/sbdemo/scoreboard.html">The Small Business Report Card
- https://scoreboardtest.usbank.com/approot_sb/sbdemo/scoreboard.html" target="_blank">Scoreboard demonstration
- www.usbank.com/cgi_w/cfm/personal/sub_global/usb_internet_banking.cfm">http://www.usbank.com/cgi_w/cfm/personal/sub_global/usb_internet_banking..." target="_blank">Online banking /bill pay demonstration
- https://depositpoint.usbank.com/xd/help/FXDUSB04.swf" target="_blank">Remote deposit capture demonstration
- www.census.gov/eos/www/naics/">http://www.census.gov/eos/www/naics/" rel="speedbump" target="_blank">Standard Industry Classifications
- Update Your Expense Control Systems: Expense Controls that Make it Easier to Budget and Track Expenses
- Payment Trends: New Technologies That Can Help You Track and Manage Cash Flow
- Adapt and Accelerate Your Collections: Streamline Your Billing and Collections Processes by Taking Advantage of the Latest Payment Trends and Behavior
- Speed Up Your Operations: How Improving Your Productivity and Shrinking Your Operating Cycle Is One of The Best Investment You Can Make
- Streamlining Your Supply Chain: Five Keys to Shrinking Inventory and Cycle Times while Accelerating Cash Flow
- The Customer Quality Review: How to Grow Profits by Rebalancing Your Customer Base
- Maximize Your Return on Assets: Six Steps to Getting More Profits From Your Property, Plant, and Equipment Assets
This information represents the opinion of U.S. Bank and is not intended to be a forecast of future events or a guarantee of future results. (2) Deposit products offered by U.S. Bank National Association. Member FDIC. (3) Credit products offered by U.S. Bank and subject to normal credit approval. Credit cards are issued by U.S. Bank National Association N.D. (4) U.S. Bank and its representatives do not provide tax or legal advice. Each person's tax and financial situation is unique. Consult your tax and/or legal advisor for advice and information concerning a particular situation. (5) Investment products, including shares of mutual funds, are not deposits or obligations of, or guaranteed by U.S. Bank or any of its affiliates, nor are they insured by the Federal Deposit Insurance Corporation, or any other government agency. An investment in such products involves risk, including possible loss of principal.
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