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Metrics your finance dashboard must include

What are the metrics that an indispensable finance dashboard must include?

1. Budget-to-actual.

2. Sales pipeline.

3. Cash flow.

4. Compare to the past.

5. Peer benchmarks.

6. Industry performance metrics.

7. Long-term value drivers.

8. Current initiatives.

While the details behind each metric can vary from business to business and industry to industry, the underlying value of these key metrics transcend all companies.

1. Budget-to-actual

The budget-to-actual table (or graphic) illustrates how the business is performing relative to the goals you set and articulate in your budget or projections. This portion of the finance dashboard clearly shows where the business is ahead of plan, and where it’s falling short. Measuring monthly progress allows time for reacting to cost overruns or revenue shortfalls.

2. Sales pipeline

Some sort of leading-indicator sales metric is a must in your finance dashboard. While a breakdown of the sales pipeline or forecast might provide the right visibility for some businesses, other companies might find a book-to-bill report — covering total sales booked and orders invoiced during a period — adequate to gauge whether there’s sufficient backlog to hit growth goals. Either way, maintaining the discipline to closely monitor sales activity allows an owner to spot trends, good or bad, and respond as required.

3. Cash flow

Projecting cash flow — even six weeks out — can be invaluable in your finance dashboard, as it can ensure there are adequate resources when and where they’re required. Proactive cash management is often necessary, as cash availability grows thin during periods of cash-intensive growth or in a firm’s slow season.

With sufficient advanced warning, perhaps you could encourage handpicked customers to prepay through an early payment discount incentive. Another option might be selectively delaying payments of certain accounts payables — naturally, you’ll want to think through the ramifications — long enough to bridge the gap. Certainly, other cash-producing alternatives exist, but the trick is to have the systems that give you an early warning.

4. Compare to the past

Financial information for a specific time period, in isolation, isn’t particularly useful. But using your finance dashboard to compare results from a certain period to past performance can be particularly enlightening. Such a comparison provides a useful point of reference for an owner to assess costs and revenue trends. Imagine your current operating margin is 20 percent. That figure, by itself, doesn’t mean much. But when the same period last year produced a 25-percent margin, an owner immediately starts asking pointed questions to determine what is driving the lower margin.

5. Peer benchmarks

Another useful tool in your finance dashboard can let you compare certain financial performance metrics against your competition. A lower gross margin relative to industry benchmarks, for example, might trigger an investigation that uncovers labour costs exceeding industry norms. This information sets an owner’s expectation regarding what’s attainable, while simultaneously focusing on where to invest precious time.

6. Industry performance metrics

Your finance dashboard should also include industry-specific KPIs (key performance indicators) used to measure financial performance. While industry-specific metrics can dominate a finance dashboard, care should be taken to measure only those metrics that are relevant to your stage of growth.

7. Long-term value drivers

Regardless of long-term plans, it’s wise to maintain a bead on the market value of your business. For example, a managed service provider is often valued on a multiple of its monthly recurring revenue. Reporting on such a metric, and watching it evolve over time, is important for creating the type of value the market will ultimately reward.

8. Current Initiatives

It seems that every business owner has at least one pet project — or an initiative that parallels day-to-day operations. It’s important to quantitatively measure the performance of these initiatives with a finance dashboard. This lets you monitor progress, and it drives decisions behind resource allocation.

Less is more, and be ready to adapt

It would be easy to rattle off 10 or 20 additional metrics, but that’s one of the challenges in building and maintaining a useful finance dashboard. Too much information can overwhelm a busy business owner. It’s necessary to experiment to find the right mix of metrics, as well as the right presentation for the metrics you include.

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