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  • For you to remain aware of the potential issues and changes in your business on a timely basis, your Controller (or Accounting Manger, CFO, VP Finance, or other person with similar responsibilities) should prepare a regular update of the key information and indicators for management. Many of the more sophisticated ERP and accounting systems provide a feature that will do this automatically once it has been initialized, but it is amazing how many businesses do not take advantage of this feature.

    In order to determine the indicators to be reported, their definition and the establishment of criteria in your system, considerable time and effort is required. Of course, it is critical that the entire management team participate in the necessary planning so that each area obtains the information that it requires.

    If your current software does not have this feature, it is not difficult for your Controller to set up a spreadsheet format that can maintain the data and be manually updated from the ERP/accounting system. A dashboard that is an automatic extract from the accounting system is always as up-to-date as the accounting system, and is therefore considered to be “real time.” A manual extract should be updated periodically. I find that the most appropriate frequency is to prepare this every Monday for the week just completed, and again on the day after a month-end, to ensure a clear indication of the status of the key areas of the business.

    A snapshot or dashboard should consist of the month-to-date information for the Key Performance Indicators that are available for your business. Once the format is set, updating this dashboard should not take more than an hour at most. Each business will select different indicators to include in the snapshot. Here are some ideas to get you started:

      • Sales
      • Cost of Sales
      • Gross margin %
      • Bank balance/ Line of credit usage
      • Outstanding cheques
      • Accounts receivable – aging breakdown
      • Days sales outstanding
      • Accounts payable – aging breakdown
      • Inventory – by major category
      • Orders received – # and $ value
      • Unfilled orders – # and $ value
      • Operating statistics
      • Labour statistics

    Of course, other criteria could be included depending on the your business and the nature of your tracking systems.

    Many businesses that do implement a dashboard or snapshot still miss two key steps

    First, ensure that your entire management team is given access to it and that they are fully educated on the meaning of every indicator. Often this will involve a session in which the Controller reviews each indicator, the source or formula used to calculate it and what it means in your business. This should include ranges that have been experienced for each indicator in the past and the anticipated causes of fluctuations. Data is a powerful tool but where it is poorly understood it can lead to poor decision-making or unnecessary disagreements and result in wasted time.

    Second, determine who is responsible for explaining unexpected values and implement a follow-up process. This could involve different people for different indicators and, although many would explained by the Controller, there usually should be other key staff to explain such items as operating statistics. This process must include reporting back to the team so that they understand how it is going to affect their area of responsibility.

    A dashboard or snapshot is not expensive to implement or maintain and used effectively can be a very effective tool in the hands of management.

    About the Author
    James Phillipson is a Chartered Accountant and a Principal of Mastermind Solutions Inc. with over twenty years experience in large and small businesses. He has provided financial counselling to his clients since 1996, often in the role of a Controller or Chief Financial Officer. James has experience in financial roles in a wide variety of businesses and industries.

    If you have any questions feel free to contact james@mastermindsolutions.ca or (416) 726-8256

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