Creating a Simple Dashboard? – use these top 8 Business Indicators

To make profitable decisions you need great information – information that imparts knowledge and provides insights. Using a variety of business Indicators, to keep your fingers on the business pulse, can be a quick and effective approach.
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To get started we think these 8 are the bare minimum; indicators covering both Business Status and Business performance. We use this set often, especially for smaller and micro businesses, because the source data for this information is available in most standard accounting software packages.
Also, when converted to a single pages of trending diagrams, these 8 will quickly indicates areas of weakness that require further investigation, decisions and possibly action.
Here are our 8 Indicators on a Simple Business Dashboard:

  • Business Status Indicators
    1. Profitability – Profit Margin = (Total Revenue less Total Expenses) divided by Total Revenue.
      SHOWS how much profit you make from every dollar you spend.
      TARGET – varies from business to business, the lower your volumes the higher this needs to be, but it should average a positive number indicating ongoing profitability.
    2. Solvency – Current Ratio = (Current Assets less stock) divided by (Current Liabilities less Overdraft)
      SHOWS how much cash you have available to pay your “everyday” costs and debts.
      TARGET – this should sit at 150% to 200% – anything below 100% indicates impending insolvency risks.
    3. Gearing – Debt to Equity Ratio = (total liabilities) divided by (shareholders equity plus reserves)
      SHOWS how much borrowings are supporting the current business, trends can indicate if the borrowings are delivering profits.
      TARGET – The higher this number the worse the business status – banks will generally only consider approving a this ratio is below 90% (generally they look for 75% or less).
  • Business Performance Indicators
    1. Inventory – Inventory Turnover = (Stock x 365) divided by Annual Sales (in some cases, Work-In-Progress replaces Inventory)
      SHOWS – how long you “sit on” and/or store goods or services before they are sold.
      TARGET – varies from business to business, but the smaller the better ie the quicker you sell and process the less storage and holding costs incurred and the more you sell.
    2. Debtors – Debtors Days = (debtors x 365) divided by Annual Sales
      SHOWS an average of how many days it takes your debtors to pay you
      TARGET – varies depending on your debtors terms – the closer to zero ie cash in hand on sale, the better.
    3. Fixed Costs – Fixed Cost Ratio = Fixed Costs / Total Costs
      SHOWS – how much of your total expenses are related to administrative and overhead costs. Every dollar spent here doesn’t directly correlate to extra sales revenue, but may be necessary to maintain the administrative capacity within the business, such as ability to handle enquiries or manage the finances and payroll.
      TARGET – as low as possible, whilst still retaining an acceptable level of administrative services.
    4. Variable Costs – Gross Margin = (Annual Sales less Annual Cost of Sales) divided by Annual Sales
      SHOWS the amount of each sale, after deducting the costs of sales, available to cover fixed costs and generate profit.
      TARGET – the higher this number the better off your business is – with a maximum of just under 100%.
    5. Employee Productivity – Sales per Employee = Annual Sales divided by average number of Full Time Equivalent Employees
      SHOWS – an average of how much in sales, on average, each staff member is contributing to your business.
      TARGET – the higher this number the better off your business is.

NOTE: these may or may not be your KEY Performance Indicators (KPIs). KPIs are the primary measures used to assess how you are progressing towards your targets – and these 8 Indicators are not necessarily focusing on any specific performance goal; they are more like taking the your business’ pulse.

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About the Author

Eve Blackall Smart Accounting image
Eve Blackall the small business answer to The Supernanny.
At Smart Accounting you work one-on-one with Eve who has already assisted hundreds of business owners increase cash-flow, grow profits, also ensuring those businesses fetch the highest price when it comes time to sell.[/box]