E-Class #4: How To Create & Use A Financial Dashboard

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1 : How To Create & Use A Financial Dashboard I. INTRODUCTION In your last e-class, you learned the productivity techniques that will allow you to most effectively achieve your goals. Specifically, you learned the 5 step process that included: 1. Creating your Overall To Do List 2. Prioritizing your list 3. Breaking down your priorities into smaller tasks 4. Creating weekly & daily To Do lists 5. Scheduling every minute of every day In this e-class, you will learn how to create and use a Financial Dashboard. II. LESSON/EXAMPLES Building and maintaining a financial dashboard is critically important to building a successful business. So, what is a financial dashboard? A financial dashboard is a series of numbers that you review on a periodic basis to judge the financial health and the performance of your business. Importantly, the financial dashboard allows you to always know what s going on in your business, and alert you to problems before it s too late. As you may know, you cannot improve what you cannot measure, and you need to track your progress to make sure you are always getting closer to achieving your goals. Your financial dashboard allows you to achieve these two objectives. Key Performance Indicators The key to the financial dashboard is the metrics that you decide to include in it. Another name for these metrics are KPIs or Key Performance Indicators. As the name indicates, KPIs are the metrics that judge your business performance based on the success you would like to succeed. Page 1

2 Examples of KPIs that you might want to measure in your business include: $ Sales/Revenues # of new customers # of subscribers # of PR mentions # of website visitors # of products manufactured Cost of Goods Sold Marketing costs Inventory levels Accounts receivable Net income Cash Employee turnover New employee hires Payroll Key ratios: current ratio, quick ratio, debt ratio, asset turnover ratio, sales/working capital ratio, etc. For example, your current ratio is calculated as current assets divided by current liabilities; it measures whether your business has enough resources to pay current/upcoming bills. Keeping a close eye on this ratio would alert you (before it s too late) that you need to raise money, or modify what you re doing to conserve cash. And clearly, keeping a close eye on KPIs such as sales will ensure that you focus on this key business building effort and quickly identify any sales problems should they arise. III. EXERCISES TO COMPLETE 1. Which KPIs Will You Include in Your Dashboard? Go through the sample list of KPIs above. Which of these KPIs are applicable for your business? What other KPIs would help you manage your business? What metrics would you like to improve (e.g., sales, # of product returns, customer satisfaction, etc.) -- each of these metrics should be in your list of KPIs. To find even more KPIs for your business, answer our KPICreator Questions: Imagine there are 5 direct competitors in your business, and that you were given a blank check and the ability to buy any of these companies. And, as a result, each of these companies opened up their books to you? What key metrics would you look at for each company in determining which to buy/which would offer the greatest value? Each of these metrics should be KPIs in your dashboard. Write down the most applicable KPIs for your business below: (Note that the Versus and Frequency columns will be discussed below). Page 2

3 Key Performance Indicators (KPIs) Frequency Versus Page 3

4 2. How often will you measure each of your KPIs? You need to view all of your KPIs on a regular, periodic basis. But some KPIs need to be viewed daily, and for others, weekly or monthly may be more applicable. For example, a KPI for your company may be how many outbound calls your sales team makes. You may want to measure this daily or weekly (you probably don t want to measure it only monthly, since if the numbers are too low, you want to correct the problem more quickly). Conversely, you may only need to measure your advertising expenses monthly. So, on your chart above, document the frequency with which you will measure each of your KPIs. 3. Against what will you measure each of your KPIs? The final information to add to the chart above is what to measure your KPIs against. For example, if today were May 12 th and my monthly sales so far total $84,617, how could I tell if this is good or bad? That s why you need other figure(s) with which to compare your KPIs. For example, I could compare my May 1 May 12 sales results to: Previous month s results (e.g., April 1 April 12) Current month projections (e.g., my forecast for May 1 May 12 ) o Essentially this would be my May sales goal divided by 31 (to get a daily average) and multiplied by 12 (to get what May 1 May 12 sales should be if I were on track to hit my May sales goal) Last year s results (May 1 May 12 of the previous year) As you can see, you might have multiple metrics against which you measure each of your KPIs. On the chart above, include these metrics in the Versus column. 4. What program will you use to maintain your Financial Dashboard? You need to choose the program in which you will maintain your Financial Dashboard. The simplest program is a spreadsheet program such as Microsoft Excel. In this spreadsheet, you would simply list the KPIs in the first column and then the results in subsequent columns. In doing so, you might categorize the KPIs based on the Page 4

5 frequency you update them, and make sure to show the relevant figures that you re comparing each KPI against. Another option for your Financial Dashboard program is to use a program such as Google Documents. Google Documents offers a spreadsheet program hosted online that multiple users can view and update at a time. This makes it easier to update and view the KPIs (and not have to deal with multiple documents being passed around). Finally, you may want to invest in financial dashboard software either software that s off the shelf or software that s customized for your business. Such software can often use APIs (application programming interfaces) that automatically pull figures from certain places (e.g., it automatically pulls your payroll figures from your payroll software; automatically pulls your revenue figures from you accounting software; etc.). Doing so simplifies and automates the process of maintaining your Financial Dashboard. Write down the program you will use to maintain your Financial Dashboard: 5. Who will maintain your Financial Dashboard? Finally, you need to choose the person who will be responsible for creating and/or updating your financial dashboard. Because it cannot be you. While the financial dashboard will be invaluable to your company, the work involved in maintaining it is data gathering ; important work, but not the $500/hour+ work that you need to be doing as a business owner (i.e., coming up with new marketing ideas; systematizing your business; training people; etc.). Who will build your Financial Dashboard? Who in your organization, or who you will hire, to maintain it? Page 5

6 IV. CONCLUSION Having your KPI data at your fingertips in the form of a Financial Dashboard is invaluable to your business. It allows you to see the financial health of your business, where you re at right now, and allows you to see and make decisions a lot faster and a lot better. Most entrepreneurs and business owners operate in the dark. Maybe monthly they look at their P&L. And most entrepreneurs don t even do that. They just run their business hoping for the best. By maintaining your Key Performance Indicators in a Financial Dashboard that you can view whenever you want, and that s constantly updated, you will better manager your business, and achieve the results you desire. In your next e-class, you will learn how to create & use a Financial Dashboard. This is KEY to your success. Page 6