July 2012 Theme – Cash and Profits
Before I get to this weeks challenge, I want to review what we have covered so far this month. Here is a recap of July Challenges focused around cashn and profits:
Now onto this weeks Business Challenge of the Week. One of the things I enjoy helping business owners with is setting up dashboards that track and measure key performance indicators for their business. So often businesses are working hard but they aren’t tracking their progress to see how they are doing and if the “work” they are doing is helping them get closer to their goals. A dashboard is in no way a replacement for standard financial reports that you should be reviewing routinely. But with the right dashboard, you will never be surprised by your financial reports and will already know what to expect.
Every business needs a different dashboard. There is no single design that is right for everyone, although there are common principles and components.
Dashboards are viewed daily unlike other reports that you may only be compiling and viewing monthly or quarterly.
Your challenge this week is to setup a dashboard for your company. Here are some tips to help you build the right dashboard for your particular business:
The three key areas I recommend your dashboard include are:
1. The Health of the Business
- – Cash, sales and profitability are going to be vital to look at here and reflect short, medium and long range measures.
2. Your Operations – You need information on who is doing what and how well they are doing it. This is where you get information on what is driving the health numbers. Some things you might track here include the following:
- Where are you getting your sales? How does this relate to historical numbers and projections?
- Production Statistics – How many widgets did you make today? If you are a service company, how many meaningful new relationships did you create today?
- Service Metrics – How many customer complaints did you get today? Call Volume? Hold Times? Website Traffic?
3. Early Indicators – Early indicators are the metrics that help you understand what is going to happen next. These numbers are the leading edge of peaks and valleys in your operations or financials. The early indicators are different for every business, and it can take time to identify them. The best indicators are often not the obvious ones. It is obvious that today’s sales are a reasonably good indicator of next month’s receivables. It is less obvious that a change in the ratio of sales-to-new- customers versus sales-to-repeat-customers could result in an increase in customer-service call volume two weeks from now.
Most dashboards are based on spreadsheets. They can be delivered by e-mail or posted on an internal server. If the dashboard is overly complex or takes too long to read, it will not serve its purpose. It needs to be something you can look at quickly every day. The best dashboards have all the key numbers in one place with the back-up detail out of the way but still available.
Here are some tips for building an effective dashboard:
- Use charts instead of gauges.
- Watch trends instead of snapshots.
- Months are bad units. Consider building your charts around the trailing thirty days of data rather than on a month-to-month basis.
Building and maintaining a dashboard takes time. It may take a year to identify all the data you should be tracking. There is a daily cost in keeping it up-to-date and reviewing the report. If things are going well in your business, this investment in time and money may seem like a bit of a waste. The dashboard for a healthy business could be considered boring. But it is during the good times that the dashboard is actually most useful, because it is when things are going well that you most need advance notice of trouble.
To Your Success,
The Rector Group