“The journey of a thousand miles begins with a single step.” However, if you don’t know your starting position, the journey may be considerably longer.
For a business, this means knowing your most vital operating information. As your time is limited and information is not free, you need to identify the minimum facts about your business which you – as owner or manager – need up-to-date and visible at all times.
The paradigm for summarised information is a Formula 1 car’s dashboard, which supports decision making at 200mph. The CEO of a business will have more breathing room, but priority, relevance, economy, reliability, and clarity should still be key design features for your dashboard. The idea is that the dashboard should be updated at least weekly – with some items being updated more often – so that it can be a stimulus to timely action as needed. This complements the normal monthly production of management information. The golden rule is: if it doesn’t help you take better decisions, don’t record it.
This post suggests four sections to highlight on your dashboard. The list here may not exactly fit your business, but this blog should still be worthwhile if it makes you think through what your own needs are.
Your bank will let you know if you are bankrupt today; a dashboard should warn you if you risk being bankrupt tomorrow and show you where intervention could be most effective. You need a simple system to track known ins and outs – with the emphasis on “simple”.
“Outs” will include salaries, taxes, bank interest, utility bills, and purchases – usually you have wiggle room only on the last of these. “Ins” are mainly customers paying you; you have no guaranteed control on this but you can follow up persistently and persuasively. Your system to track customers should identify work in progress, invoices, due dates, and overdues. The balancing “in” will be an overdraft, invoice discounting, or other method for getting cash quickly – one objective of forecasting is to avoid overusing these.
Stock affects cash indirectly, since it has to be financed; it may be worth monitoring alongside your cash items; stock reduction is one way of freeing cash.
If you are selling things you are possibly in business; if not, you are definitely out. A sales pipeline is generally leaky and slow, and you need realism around actual sales coming through. Sales come both from old customers renewing and new customers, and you need separate reporting on each. Web-based tools can automate some aspects of sales reporting, but your dashboard needs verified information; a good discipline is a weekly meeting with all the sales staff to get predictions and to review the outcome of previous predictions – knowing they will be evaluated should help keep staff accurate.
Compared to cash or sales, it is easy to assume that making your product or delivering your service is easy. Maybe it is, but you need to track two areas at least: quality and capacity.
If you are getting customer complaints, you are going to have to devote time and probably money to redoing existing production and to improving processes. The sooner you recognise the problem, the sooner you will fix it and the sooner you will be back to profitable production. If you are not selling and producing something over 80% of capacity, you have space to deliver more within the same infrastructure; for most businesses that is the difference between breaking even and getting rich. If you have excess capacity you need to look at putting more effort into marketing or sales, finding a sector where you can supply more at a lower price without cannibalising existing business, or indeed reducing your capacity by shrinking – never attractive, but sometimes correct.
Your business may well have its own additional metrics which are vital for understanding production. For example, you could track work in progress, both to understand how efficient your production is and to be able to forecast future capacity in addition to today’s.
The three categories above are biased towards numbers; this leaves space for a short “to do” list. Carrying today’s top three to five actions on your master dashboard is a good way to maintain focus and to encourage you to deal with the important ahead of the interesting.
This blog has been written by Bernard Manson, Client Finance Director with Tectona Partnership.
To find out more about a management dashboard or if you would like to discuss any of the other topics covered above further with Tectona Partnership, please contact Mark Nicholls on 07818 407061.