April Topic: Dashboards

Not all measures of business health and growth are tracked in financial statements. Having a regularly reviewed dashboard that brings together financial and operational metrics can be a very helpful indicator of business health.

Overview

A previous April monthly topic provided an overview of the three main financial statements that companies should use on a monthly basis: income statement, balance sheet, and cash flow statement.

In addition to financial statements, dashboards are helpful for the following reasons:

1.     Dashboards track information that is not tracked in financial statements.

2.     Dashboards track financial information that is essential to the business model.

3.     Dashboards provide insights into future revenue.

4.     Dashboards track key performance indicators associated with strategic initiatives.

This month’s topic will touch on the uses of dashboards in strategic categories.

1. Dashboards track information that is not tracked in financial statements.

Not all measures of business health and growth are tracked in financial statements. They are often, however, closely correlated. For instance, number of customers. Your revenue tells you what your sales are, but it doesn’t tell you the diversification of those sales across your customer base. Having a dashboard that shows a correlation between customers, revenue, and cost of goods sold can be a very helpful indicator of business health.

Utilization and realization are also helpful to track using dashboards. Utilization is a percentage of work time spent on clients. Realization is the percentage of full rates at which client-focused work is compensated. These should be calculated both for individual employees and across the firm. See the March Monthly Topic for more on utilization and realization.

Sample Utilization/Realization Dashboard

Cost to acquire a customer is another important metric to track to know which areas of marketing are most cost-effective.

Sample Customer Acquisition Cost Dashboard. Source: Proof Technologies, Inc.

2. Dashboards track financial information that is essential to the business model.

A sign of a healthy company is that its spending categories are proportionally appropriate. The target business model is generally to spend 40-45% on employees (payroll, benefits); 10-20% on overhead costs, and 35-50% on owners (NOI – Net Operating Income).

Sample Business Model Dashboard

3. Dashboards provide insights into future revenue.

Your business’s backlog consists of work that has been sold but not yet invoiced. The backlog may include a timeline for completion of each project which will inform the timing of future cashflow.

Your pipeline consists of work that has been proposed but not sold. A pipeline considers the likeliness of each project to be approved.

Sample Backlog/Pipline Dashboard

4. Dashboards track key performance indicators associated with strategic initiatives.

Some of the key performance indicators that are useful to track are diversification of geography, productivity per employee (utilization), customer growth segments, new service growth segments, and customer longevity. It’s also helpful to compare these with others within the industry.

Sample Industry Comparison Dashboard

Summary

Companies that generate and regularly review a set of strategic dashboards are able to see trends in their growth and performance over time. They can use this information to make adjustments in areas that need improvement, and to continue best practices that are bearing fruit. Companies should choose and design their specific dashboards so as to reflect the business’s particular focuses, but it is also good to keep some of them general enough to be comparable to industry averages.