When Jeff Graham fires up his laptop each morning, one of the first things he does is open his financial dashboard window. He keeps it open all day long to track trending information about cash flow, accounts receivable and billable hours.
“I can see if we're having a good or bad month, and that sets the tone for the day,” Graham says. He and his father run Civil Estimator, a Toronto-based consulting firm that works with excavation companies in North America and overseas. “It boils down to knowing how much money we need to take in each day to make the company go.”
Financial dashboards may offer a real-time snapshot of the key performance metrics for a business. They may be particularly important for small businesses, which tend to move quickly, make snap decisions and often don’t have the financial stability and heft of large corporations. Even small-business owners who rely on in-house financial expertise might benefit from checking their financial dashboard daily for their business’s key metrics.
—Jeff Cornwall, professor of entrepreneurship at Belmont University
Financial Dashboard vs. Financial Statements
“What you’re trying to do is constantly monitor the temperature of your business,” says Jeff Cornwall, professor of entrepreneurship at Belmont University in Nashville. “If you have a good financial dashboard tied to the right numbers, it allows you to observe problems before you start losing money or losing customers.”
Traditional financial reports like income statements are based on historical information, but they may offer little insight into potential future developments or trends. “A good dashboard lets you see down the road and predict what’s coming,” Cornwall says. “That includes good things like an increase in sales, or bad things like tough cash flow.”
Financial Dashboard Metrics
Graham set up a dashboard that tracks monthly revenues and expenses, with a section highlighting outstanding invoices. “That way we can see trending information,” he says. Cornwall suggests tracking other measures apart from sales and additional financial data.
“What are the things that keep you awake at night?” says Cornwall, who is himself a serial entrepreneur. A new digital business that depends on attracting and retaining customers has prompted him, he says, to focus on attrition. “I look at how many customers have registered, but even more at how many I am losing each day,” he says.
For a healthcare company, Cornwall set up a dashboard that monitored incoming inquiry calls. “We knew that was a clear predictor of an increase in facility use,” he says. “So if we saw an uptick in inquiries, we could put staff in place and not get caught short-handed.”
Checking the Dashboard Daily
“Cash is something you need to monitor daily, no matter what your business is,” Cornwall says. “And it needs to be a more robust measure of cash than what’s in the bank.”
Graham agrees, “Tracking your hours every day is huge,” he says. “Especially if you're in a service industry, you have to make sure that’s updated in real time.”
This doesn’t mean you should ignore more long-term financial reports—those should work in conjunction with the daily dashboard. Cornwall suggests creating a daily, weekly and monthly dashboard to report on different sets of metrics. “Certain measurements are too volatile to look at daily,” he says. “But in general, I’d err on the side of more frequently. The more you can push to daily, the better.”
At the end of last year, Graham pulled together some of his key daily metrics into a two-year overview. The results shocked him. “We found out that our biggest client made up 50 percent of our revenue,” he says. “And the next largest client was bigger than all the rest of the list combined.” Consequently, Graham shifted his strategy in a more profitable direction: Focus closely on the top handful of clients rather than trying to service 20 or so smaller ones.
Small businesses often tend to be forward-looking and ready to react to opportunities, and a daily dashboard may be a valuable resource to support that nimbleness. A glance at key metrics may reinforce an instinctive move, call attention to sagging performance or help redirect fast-moving business strategy. Checking in daily may help ensure your business doesn’t check out.
Read more articles on managing money.
This article was originally published on April 27, 2015.