Forecasts and Financial Models, part three - your KPI dashboard
The third installment of Metric Bee's Forecasting and Financial Models series takes a deeper dive into your financial KPI dashboard. This is the visualisation of your startup's finances: it shows you where you stand, what you can expect, and how to analyse your data to make good decisions.
You've already seen in our post on Financial Models how a KPI dashboard can give you an instant overview of the impact any scenario, real or hypothetical, will have on your business. We looked there at a template you can use to plug in your data and see it displayed as charts and graphs. But to really get the ultimate value from a dashboard, you'll want to customise it to suit your business goals.
That means selecting the metrics you need to track, and that will vary from business to business, and depending on what decisions you want to make at any given time. You might be concerned about a drop-off in new users; for this, you'd need to track your conversion rates, the number of users reached, and how long you're retaining customers for. But if your main concern is that there's not enough cash left in the company account at the end of the month, you'd be looking at a different set of metrics to get to the bottom of the issue.
So how do you know which metrics you should be tracking? There are top ten lists aplenty online, and we'll look at a few key financial metrics you might want to consider, but most important is tailoring the metrics on your KPI dashboard to suit your needs. These aren't generic, and you'll need to put thought into your selection. Metric Bee recommends you run through these steps before calibrating your dashboard:
1. Determine your goals. What is it, specifically, that you want to know? What assumptions need proving or otherwise?
2. Select your metrics. Looking at your goals, what numbers will give you the information you need to help you understand this aspect of your business?
3. Set your targets. Tracking metrics via a dashboard is a valuable process, but you need to know what you're aiming for.
4. Get the data presented. You can use the dashboard of your Financial Model for this, or use an online platform like SimpleKPI which allows you to plug in the non-financial data like retention/churn, customer review scores, and anything else you want to add in.
5. Decide on a timeline. How often will you be checking the dashboard? How long until you expect the metrics to yield workable results? Again, this is going to depend on your business and what you're tracking.
Let's take an example mentioned above: you're concerned about how much you're spending on your fixed costs. These are the costs that don't directly bring in money - so marketing is not a fixed cost, because every penny you spend on that is going directly towards finding and converting customers, but your office rent is a fixed cost, as it's not contributing to your revenue.
So, your concern is with fixed costs, and how they are impacting your business as a whole. Running through the steps above, we would set up a dashboard like this:
1. Goal: work out whether we're over-spending on fixed costs, and fix any issues
- Budget Variance (how much you really spend, compared to what you predicted you would spend)
- Operating Expense Ration (how much of your revenue is being spent on operating costs - the lower this is, the more viable your business is)
- Working capital (how much money there is in the company right now)
3. Target: reduce any unnecessary costs, and lower the total of fixed costs by 20%
4. Present: adding these metrics to the dashboard
5. Timeline: as we only calculate our fixed costs at the end of the month, we should be checking these metrics monthly, and will review at the end of three months when we have enough data to make a good decision.
You can use your financial KPI dashboard to figure out specific problems like this, and you should also run the same process business-wide. What are the metrics that your startup should always be tracking? If you're a SaaS company, your retention rates will be key. For a startup that builds products, keep an eye on your Cost Of Good Sold (COGS). And any business can benefit by putting their Quick Ratio (AKA Acid Test) front and centre of their KPI dashboard; this compares the assets you can easily turn into cash (liquidate) in the short-term, to how much you need to pay out in the same period. A ratio of 1 or above shows you can currently meet your short-term obligations. Think about what metrics will most accurately reflect the health of your business, and keep them on your financial KPI dashboard to keep ahead of any potential issues.