by Granville Triumph
It’s that time of year when organizations are closing the books on last year and gearing up for tax season. Accountants are busy preparing income statements, balance sheets and reports that show the organization’s financial position.
All of those accounting functions play an important role in any business. However, reviewing financial statements is like looking in the rearview mirror. You can see clearly where you’ve been but not where you are or where you’re going.
Myriad factors affect an organization’s financial health on a daily basis – sales, billable hours, cash flow and accounts receivable, just to name a few. In today’s fast-paced, hyper-competitive environment, business leaders need real-time insight into key financial metrics. This is particularly critical in small businesses that lack the financial clout of a large corporation and must move quickly to seize opportunities as they arise.
A financial dashboard can help you monitor the health of your business, spot trends and make more-informed decisions. You can determine whether revenue growth is from new or existing clients, and which clients are most profitable. What is your average overhead? Are your staffing levels adequate? Are billable hours properly balanced among team members? How long does it take customers to pay and how many accounts are uncollectable?
The answers to these kinds of questions are known as “key performance indicators” or KPIs – measurements that help you evaluate the success of your business activities. KPIs aren’t just financial – they can be used to measure everything from social media engagement to call center performance. However, your financial dashboard will focus on KPIs such as working capital, return on equity, debt to equity ratio and profit margin to help you better manage your finances and grow your business.
Financial dashboards are more than dry reports of numbers – they use graphs and other visuals to help you better understand what the numbers mean. This can aid in time-sensitive decision-making and help you present the right level of detail to managers, investors and boards of directors.
Setting up a financial dashboard is also an excellent exercise that can help fine-tune your business strategy. Experts recommend asembling a diverse team of leaders to determine which metrics will be most valuable to their functional areas. By knowing which KPIs your managers should pay attention to, you gain a better understanding of what makes your business tick, and what targets you should set in order to reach your strategic goals.
There are many tools for creating a financial dashboard, from Microsoft Excel spreadsheets to specialized software platforms. Whatever system you choose, make sure that it’s easy to use, update and maintain. Don’t try to replicate everything you’d see in a financial report. Create a simple, graphical interface that lets you see trends and variances at a glance.
After all, a financial dashboard is of little value if you don’t use it every day. A financial dashboard can help you refine your strategy on the fly, validate instinctive decisions, and take steps to shore up sagging performance. And when you get your monthly or quarterly financials from accounting, there won’t be any surprises.