Several indicators can play a vital role in making sure that your company is in sound financial health. They include a range of accounting metrics that are typically organised as a dashboard.
The dashboard is not just for your accountant. As an executive, you should have daily access to it. The dashboard indicators include the break-even point, the company’s profit margin, cost of goods sold, financial ratios, working capital requirement and cash flow.
These indicators may be supplemented by cash metrics such as the average times taken to collect payments from customers or make payments to suppliers:
- Days Sales Outstanding (DSO) indicates the average time it takes your company to collect payment between the issuance of an invoice to a customer and its collection. This indicator is useful for calculating your working capital requirement.
- Days Payable Outstanding (DPO) is the average time it takes for you to pay your invoices to suppliers. The lower the number, the shorter it takes you to honour your commitments to your suppliers - which sends them the message you are not facing financial difficulties.
While accounting indicators can be checked weekly, cash indicators should be monitored every day. Whatever the case, setting up a dashboard will allow you to keep daily tabs on all of your key performance indicators.
Tip: Accounting software can be set up to issue warnings if indicators exceed trigger levels. Do not be afraid to set extremely sensitive levels so you are alerted if anything unusual happens.