Updated: Feb 10, 2021
Too often, businesses we start working with don’t understand quantitatively what is going on in their business during a month. It usually isn’t clear until ten to fifteen days into the next month when they close their accounting records. For businesses that don’t have a formal month-end close process, which is common in small and lower-middle market private companies, this understanding may not come until a quarter or even a year into the future.
While tightening an accounting close is critical (and the subject of another post), your team needs to know what goals they are shooting for each month and how they are doing before the month ends. When a business starts using Key Performance Indicators (KPIs) to augment the emotional side of management (we call this marrying the head and the heart), it's almost like magic happens. We've seen it so many times. While some businesses may need daily goals and dashboards, a weekly dashboard will be all that is needed for most.
Timeliness is Important
For many businesses, a cultural rhythm of getting all entries accurate by close-of-business on Friday works well so that a Monday morning update call will have timely and accurate information. For businesses that have activity on the weekends, you’ll obviously need to set your data-pull and week-ending date accordingly.
Knowing how you are performing toward your month goal, and as compared to previous time periods, is critical before the month ends. That way you can still do something about it. Rather than the dashboard being a tool for inspiring forensic conversation about what went right or wrong last month, it should be a tool to help you create and manage the month while there is still time to change the results.
Getting the Data
You’ll need some type of business management software that allows for daily or weekly posting of activity and you’ll need your team to be in the rhythm of making sure all invoicing and cash activities are accurate every week. For businesses with current software, this usually isn’t a problem as activity is logged in software as it happens in real life. Believe it or not, we’ve run into more than one business with software so old that it doesn’t even allow weekly reporting of data. For these businesses, it is time to upgrade. The return on investment is so compelling that it would be difficult not to justify.
Ideally, your accounting software and CRM are contained in one business management software (or ERP system) and you’ll be able to pull financial and operating metrics from the same place. But the myriad software options often leads to multiple systems that don’t talk to each other well. If this is your case, you’ll need to aggregate the data.
Excel is probably the most basic solution for aggregating data from multiple sources, but Excel will require too much labor for this repetitive task. We recommend using Excel for a short time while you figure out exactly what you want and then investing in another solution which can automate the process. You don’t want to waste time each week processing and formatting data. You want to spend your valuable time interpreting the data and then making more informed management actions to steer the ship.
Which Data To Pull
Each business is different, so you should assemble the numbers that have meaning to your managers and front-line employees and can affect their behavior. This likely isn’t the place for more sophisticated financial measures such as Return on Capital Employed (ROCE), Economic Value Added (EVA), Z-Score, or Return on Assets (ROA). Instead, measures for which team members can see a direct link to their behavior are important. And a good mix of leading indicators and trailing indicators is wise.
So you might include things like revenue recognized, gross profit, and cash collections as trailing indicators, and things like store visits, sales orders received, and website clicks as leading indicators.
What’s the Timing?
Again, so much depends on the business, but here are some guidelines. If your business is seasonal compare month-to-date this month with month-to-date this same month last year. If not, a comparison to last year may be appropriate. Comparison to month-end goals is also critical as every team needs to know where they are going.
Here is a de-identified example of one scorecard we help create every Monday morning for a company with whom we work: