Data To Monitor

Key Financial Performance Indicators

We all know that to run a business well we need to look regularly at how we are doing. Deciding on key financial information – financial performance indicators – to keep track of and reporting financial performance, is not rocket science and definitely should not be left to our accountants alone.

Key financial performance indicators to look at

Your cash flow forecast tells you what you planned and your cash flow statement should tell you how things have actually turned out. To monitor trends and spot issues within your business performance you also need to look at other operational information. Some suggestions for areas that you may want to monitor on a regular basis (e.g. per month) are:

• £s value of your sales
• £s value of your order book – this is particularly important if you have a long lead time before you are paid for the sale, or you need to check that you have the capacity to cope with orders placed
• £s value of your direct costs or expenses
• £s cost of payroll
• £s value of accounts receivable (money owed to you) if this figure increases and your sales volume stays flat you need to look at how good your debt collection is – or you might want to monitor over due invoices directly e.g.
• £s value of the bad debt you are carrying (or value of overdue accounts by age e.g. one month overdue, two months overdue etc.)
• £s value of accounts payable (what you owe and due date and/or percentage paid by due date)
• £s value of inventory (stock in hand)
• £s value of materials used

You can then start to work out the financial performance ratios and data to monitor trends, ensure there are no imbalances developing and inform budget-setting activities. The following lists some of the most commonly used financial performance ratios and data.

• gross profits (or losses) for a period = total sales or turnover less total costs of goods sold (total spend, direct costs)
• the gross profit figure can then be used to calculate your return on sales (ROS) which is a critical figure to check your profitability
• ROS = the gross profit figure divided by the value of sales revenue – expressed as a percentage
• percentages against sales are particularly useful to track trends and changes in your costs e.g.
  • payroll costs as a percentage of sales
  • materials use as a percentage of sales
  • direct costs as a percentage of sales
• trends in relation to debt collection can be tracked by looking at overdue accounts or bad debt as a percentage of accounts receivable

Ultimately you as the CEO, MD or business owner need to be in control. You need to decide what your targets are and want you want to look at – your key financial indicators. Then make sure that the data is available and accurate. Once you have the data you will be able to manage the performance of your business more effectively and spot problems before they become critical, especially if you have prepared good forecast information against which to compare your actual performance.nning is at the heart of performance management. Without a business plan you will not know exactly where you are headed so it is unlikely you will know when you get there or whether you are on track or off track.

Example of monitoring table with Key Performance Indicators (KPIs)