12 min read
When running a business, one of the most common pieces of advice you'll encounter is being told that you should know your numbers.
Key Takeaways
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Often, though, it's not always clear which numbers you should know, how to read them, and what actionable information you can actually glean from your company's financial data.
The GrowthForce Company Scorecard, however, makes "knowing your numbers" easy.
By following the six KPI charts included on your scorecard, you'll be able to see the relationship between people and profitability in your company. These quickly "consumable" charts are designed to make it easy to understand, measure, and compare some of the most important drivers of your business.
The six charts that make up your One-Page Scorecard provide a quick and easy monthly look at the relationship between people and profitability in your company.
There are many different reports, ratios, and KPIs that you can use to understand your business. In fact, data can be collected on every aspect of your business and analyzed in nearly infinite ways. Too much data, however, can be overwhelming and quickly become meaningless. Understanding which drivers have the greatest impact on your business and knowing how to analyze the financial data related to these drivers will help you optimize performance and productivity to maximize profit.
Our One-Page Scorecard includes the following charts:
The six reports contained in the One-Page Scorecard can help any business that makes money on other people's time (service-based businesses in particular).
So, why have we chosen to include these six charts? These charts work together to reveal how people impact profits and how the results impact your human capital management strategy. We recommend you look at trends in these charts to measure and compare your company's performance by benchmarking against your budget and company history as well as your peers and competition.
The six charts are arranged in a specific order on the One-Page Scorecard. The left column shows people metrics, and the right column shows company metrics. The top row represents revenue, the middle row represents gross profit, and the bottom row represents net income. Look at your scorecard each month, reading across each row to track how your people are driving profits in your business.
Revenue Divided by Total Hours Paid
"Revenue per hour shows how well you are managing the productivity and resulting profitability of your people."
Revenue per hour is the dollar amount of revenue earned for every hour you paid people to work. Total Hours Paid includes all salaried and hourly employees in addition to both direct and overhead staff. Use 40 hours to get total hours paid for salaried and part-time FTEs.
Revenue per hour is one of the most important metrics to watch when you make money on other people's time. It shows how well you manage the productivity and resulting profitability of your people. The hidden costs of turnover, non-billable time, and inefficient time are summarized in one number.
If Revenue Per Hour is growing, recognize and reward your best people and teams.
If rates are shrinking, look at pricing and make sure your bids include all labor costs on a job.
Income Earned From All Sources
"Gross revenue shows the total dollar amount of money earned. It's the top line."
Gross revenue is the total amount of money earned. It’s the top line, before expenses, deductions, allowances, etc. It shows the ability of a business to sell goods or services but not necessarily the ability to make a profit.
The gross revenue metric is an accurate indicator for service businesses where there isn’t much difference between gross and net sales. The trend line tells you whether your billings are going up, shrinking, or staying the same.
If gross revenue is increasing, make sure margins on new business are on target.
If gross revenue is shrinking, decide if it is a new reality or temporary.
Read More: How Much Do Bookkeeping Services for Small Businesses Cost?
Total Labor Cost ÷ Number of FTEs
"Labor cost per employee provides a benchmark on how your total costs for human capital changes as you grow."
Labor cost per employee is the total cost of your labor divided by the number of full-time equivalent (FTE) employees. Full-time salaried employees are equal to one FTE at 40 hours of work.
This dollar figure shows changes in cost per employee and gives visibility into hidden costs like overtime, health insurance, PTO, etc. Profitable companies that share profits want an increase in cost per FTE. That may also mean low turnover as higher-paid, more experienced people have higher billing rates. Higher profits drive bonuses which increase the cost per FTE. In this case, higher trending costs can be a good thing.
Gross Profit ÷ Total Revenue x 100
"Gross profit % or gross margins vary with industries and company lifecycle. Do you know where your profit metrics and trends should be?"
Gross profit, aka Gross Margin, shows how efficient the business is, as it delivers your services. Your gross profit percentage tells you what portion of your earnings are available to cover:
Gross profit is shown as a percentage to help make sure increases in revenue don’t mask service delivery problems.
Gross profit % shows how much profit was made on the work provided, as a percentage of the total revenue. It tells you how well you priced your jobs, managed people, and controlled out-of-pocket expenses.
Use your gross profit % to evaluate how well you are managing sales and service operations. Is your sales department delivering profitable projects? Are your project managers completing the projects within budget?
Read More: How Do I Know If My Business Needs A Financial Controller?
Net Income ÷ Total Labor Cost
"ROI on total labor cost shows you how much profit you get from your investment in your people over time.
If you take care of your people, they will take care of your clients, who will take care of your investors."
ROI on total labor cost is the % of net income compared to the total human capital cost. It shows the profit on the investment in your people – the profit earned on the total cost of your staff.
ROI on total labor cost shows you how effectively you manage your most important asset, your people. It shows the effectiveness of your human capital management strategy. The trend shows your ROI on your people over time and whether you need to focus more on your company or people strategy.
Read More: Outsourcing vs. In-House Accounting Cost Comparison
Revenue Minus Cost of Goods Sold Minus Overhead
"Net income is the bottom line, a key indicator of profitability, cash, and equity."
Net income is the most important result of the company. It is the amount of profit or loss the company made. Net income is also referred to as the bottom line.
Net income shows whether or not the company increases its equity value by bringing in more money than it spends each month. It tells you if the business model is working, and it is important to measure profitability over time.
Net income turns into cash, supplying the lifeblood of the company.
Did you expect the changes in net income reflected in your financial report? If not, analyze the variances.
How does your net income trend compare to the gross revenue trend:
Struggling with your cash flow in these economic conditions?
We'd be happy to speak with you about how your company can benefit from monthly financial insights and management with a One-Page Scorecard like this. Having easy-to-scan charts that show your company's relationship between people and profitability can provide valuable insights that you might not currently have on your business.
GrowthForce specializes in providing accurate and up-to-date bookkeeping, accounting, and controller services for small and medium businesses. We produce both financial and management reports that show businesses their key performance indicators to help drive growth and success.