Last week we talked about identifying the key drivers of your business. Today, now that we've identified them, we can discuss how to create a financial dashboard for your business.

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HOW TO CREATE A FINANCIAL DASHBOARD

Last week we talked about the key drivers and KPIs that drive your business forward.

Once we’ve identified those items, we need to setup a system to track them.

I could tell you “choose the right software,” which could be sufficient. But within even good software, I’ve seen businesses end up with a piling heap of junk metrics.

In some ways, good software means you track it all instead of keying in on the RIGHT metrics.

So today we’re going to talk about:

1. Creating a reporting schedule (and what to track when)
2. Making sure you track the important areas
3. Interpreting the data
4. Building the dashboard

Create a reporting schedule

The key to the right reporting schedule is a combination of the right metrics at the right time.

This may sound simple, and like it doesn’t need its own section, but it can absolutely be done really wrong.

First, we want to determine what’s worth watching on a daily or weekly basis. These are going to be your leading measures.

As you look at these each week, you’re trying to determine if you’re on track to reaching your goals, which are inevitably the lagging measures tied to those leading measures.

Then, monthly and annually, you’re reviewing the lagging measure for:

1. Result against goal
2. Result against expectation (was the leading measure predictive?)

This means that these packages are ultimately deeply interconnected. In a sense, you’re looking at the numbers 3-4 different ways to see what trends you can highlight and identify.

Some examples of metrics that could be used:

Weekly (leading):

1. Sales call and/or leads
2. Customer service inquires
3. Orders filled / dollar associated
4. Employee hours worked (especially in consulting/billable hours situations)
5. Cash change (balances, AR, and AP)
6. Inventory levels

Monthly (lagging):

1. Revenue
2. Cost per Lead
3. Expense by department
4. Net Profit & Profit Margin
5. Employee utilization
6. Cash flow forecasting
7. Debt convenant ratios

Weekly we’re looking initial trends and projections. On a monthly and longer timescale, we’re looking for deeper, more specific trends.

Software like NetSuite allows you to create reporting packages that capture a wide variety of metrics and automatically track them with ease.

Covering the important areas

Every dashboard will have some of the same key elements, but the specifics of what you track will be dependent on the specific drivers of your business.

If you missed it, read last week’s newsletter and check which might be right for you.

Common areas to include are:

1. Revenue tracking
2. Gross Profit/Margins
3. Cash Flow Indicators
4. Inventory Management
5. Debt and Equity Ratios (financial health)
6. Marketing & Sales Efforts
7. Employee Efficiency metrics

If your business does not have inventory or debt, you may not need those metrics. If you’re a service business, your employee efficiency metrics will be a huge driver, but they may not be relevant for product businesses.

The measures and frequency on which you measure these will be dependent on your business and the interconnected nature of your metrics.

It’s better to start with too many and narrow than start to narrow and have to widen. Limit yourself to 2-3 metrics per area in each reporting period, as more can become overwhelming. Then, as you see what’s really driving the results, you can start to narrow down your focus.

Interpreting the data

Once you’ve set up the right reporting package, it’s time to start analyzing the data.

Bad analysis is oftentimes worse than no analysis at all.

There are different types of analysis. Today we’re going to focus on what’s most helpful when looking at a dashboard:

Trend Analysis. You want to examine your results over time and identify upwards or downward trends. This is done on both the weekly (leading) and monthly (lagging) reporting. Understanding seasonality or cyclical patterns is key to not over reacting to short-term trends.

Comparison Analysis. Comparing current data to both the company’s historical data and industry standards or benchmarks is helpful to making sense of the numbers. Historical data compared year-over-year or quarter-over-quarter helps you zoom out and see the larger trends going on in the business. It can be hard to see changes in week-over-week or month-over-month data, as the time horizon is short. So by comparing to previous quarters and years, it highlights larger changes in the business.

Benchmarks assure that your goals are realistic and within the expected result for your industry.

Variance Analysis. I’m a big fan of budgets, which you could likely tell from my recent series. Creating a budget creates an expectation we can compare against in the future. Targets, or goals, for each metric do the same. This clarifies what the data means and helps you not get swept up in excusing-away (that’s a “word” right?) bad results.

Ratio Analysis. Ratio analysis is a version of comparison and variance analysis, but I thought it was worth mentioning on your own. In finance, there are a ton of different types of ratios. Understanding which are important to your business, what they mean, and how to manipulate them will help you run your business well. We want to compare ratios against trends, industry standards, and your expectations (variance analysis).

Predictive Analysis. The whole point of looking at a dashboard is trying to interpret what it means for the future of the business and what actions you could take now to manipulate that future, if needed. Predictive analysis is using historical data to forecast future trends. By their nature, leading indicators are predictive of lagging, but this is not what I’m talking about here. Predictive analysis is most used when looking on a wider time horizon (month, quarter, or year) and extrapolating out assumptions to guess a future outcome.

When running predictive analysis, we want to take into account the risks present, best and worst case scenarios, and most likely outcome.

Data organization

Once you’ve identified the metrics, the ability to visualize and automate the data is key.

Visualizing data

Surfacing data in a way that produces the right analytical takeaways and make the data easy to compile and surface can completely transform an organization.

For example, when using month-over-month reporting, bar charts can do a good job of comparing the data, but line graphs do a better job. This makes it easy to not only see which year is higher but the trend and relationship between the 2 years. This helps you have a better understanding of potential future outcomes, too.

Sometimes the organization isn’t visual at all, but using percentages instead of numbers. Understanding a number in relation to a past result (displayed as a percentage) can take an abstract dollar increase and help you understand how that growth pattern will look in the future.

Automation

We also want to make sure reporting is easy to compile. Automation is key in this, but also:

1. Good instructions
2. Clear responsible parties
3. Ease of compiling

By creating good template worksheets, you can take hours of compiling into minutes.

I run a college football pick ‘em contest with friends (well… 500+ people). The old process took 5-6 hours per week for 7-10 people… exhausting. But through spreadsheet automation, I was able to reduce the investment to 30 minutes a week TOTAL.

That’s the magic of the right team and tools.

Difficulty in compiling makes it less likely the reporting will be consistent, which makes it less usable.

The right tools, whether AI, machine learning, or just good software, can make all the difference in the world too.

Explore your options and the integrations available for the software you use to see what your options are.

Wrapping-up

Dashboard creation and reporting is a never-ending process. You’ll never have the “perfect” report. And this isn’t a bug, but a feature. The ability to change and manipulate them is key to keeping them relevant.

They don’t stay the same because business doesn’t stay the same.

Your tools change.

Your team changes.

Your clients change.

Your competitors change.

Change is a part of business and the right dashboarding tool will change with you.

Choosing the right piece of software is an important decision and one that should be given the proper attention.