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Increase your Profit with Management Reports

How KPIs, Ratios, Reports, Scorecards and Dashboards help Businesses Increase Profit and Improve Cash Flow

How Management Reporting Puts Your Numbers to Work

  1. What is Management Reporting?
  2. You Need Management Accounting to Get Management Reports
  3. Management Reports vs. Traditional Financial Reports
  4. Getting the Data: KPIs
  5. Business Decisions: Data-Driven vs Gut-Driven
  6. Summary Conclusion

What is Management Reporting?

Management Reporting (or Managerial Reporting) includes reports, KPIs and scorecards used by management to monitor performance, track against plans and make decisions to increase profitability, performance and growth.

Management Reporting helps you make data-driven decisions to answer...

  • Am I pricing my jobs right?

  • Which clients are most profitable?

  • Where should I spend marketing dollars to grow my sales?

  • How much can I afford to spend on customer acquisition?

  • How can I improve operations to reduce expenses?

Instead of an overall evaluation of the company, management reporting is focused on segments of the business. By segmenting, you can get into the details and analyze the drivers of your business. An example would be analyzing how the Marketing Department is performing for a certain time period or how much profit one Sales Employee had a certain month.

Management reports are great for CEOs to gain insight on specific areas of their business.

However, you want to make sure you are getting the reports that your business needs to drive strategic decision making. You don’t want to put the work into pulling reports that aren’t being acted upon.

 


What is Management Reporting?

Management Reporting (or Managerial Reporting) includes reports, KPIs and scorecards used by management to monitor performance, track against plans and make decisions to increase profitability, performance and growth.

Management Reporting (or Managerial Reporting) includes reports, KPIs and scorecards used by management to monitor performance, track against plans and make decisions to increase profitability, performance and growth.

  • Are you pricing your jobs right?

  • Which clients are most profitable?

  • Where should I spend marketing dollars to grow my sales?

  • How much can I afford to spend on customer acquisition?

  • How can I improve operations to reduce expenses?

Management Reporting (or Managerial Reporting) includes reports, KPIs and scorecards used by management to monitor performance, track against plans and make decisions to increase profitability, performance and growth.

Management reports are great for CEOs to gain insight on specific areas of their business.

However, you want to make sure you are getting the reports that your business needs to drive strategic decision making. You don’t want to put the work into pulling reports that aren’t being acted upon.

You Need Management Accounting to Get Management Reports

Management Accounting (or Managerial Accounting) provides the processes and procedures that create reports to aid management in strategic decision-making.

Unit Economics

Management accounting is about Cost Accounting so you can get unit economics to help you break down a business to its most basic element, so you can understand profitability by whatever way you organize your company.

Once you understand your unit economics, then you measure what drives its success and make decisions based on those KPIs you choose for your company

A strategic CEO evaluates employee profitability and operations by measuring the unit economics that apply across the entire business – this is also known as Common Sizing. 

Examples of unit economic metrics for a service business are profit by:

  • Customer

  • Job

  • Employee

  • Income and expense per hour paid

Management Reports vs. Traditional Financial Reports

Traditional Financial Reports encompass the standard weekly, monthly and quarterly reports that companies receive each month.

Financial Reports vs. Management Reports: What’s the Difference?

Difference-Financial-Management-Reporting_copy-1-1Traditional Financial reports:

  • Profit and Loss Statement
  • Balance Sheet
  • Statement of Cash Flows

However, an income statement and balance sheet aren’t actionable. They show the historical results of a business’ performance. Those documents don’t provide insight into how the business got to that point, or what needs to be done to change those results in the future.

Most accounting systems, such as QuickBooks, don’t readily provide KPI reports that help drive performance. That’s why small business’ must look beyond the traditional financial statements that get spit out of the accounting system and get management reports with actionable financial intelligence to put your numbers to work.

Management Reports are not mandatory and are for internal use only. Your company doesn’t have to follow GAAP guidelines when producing the reports.

There are several types of management reports - the list below are just some examples. You could get customized management reports to fit the needs of your business depending on the decisions you are trying to make.

Instead of an overall evaluation of the company, management reporting is focused on segments of the business. By segmenting, you can get into the details and analyze the drivers of your business. An example would be analyzing how the Marketing Department is performing for a certain time period or how much profit one Sales Employee had a certain month.

However, you want to make sure you are getting the reports that your business needs to drive strategic decision making. You don’t want to put the work into pulling reports that aren’t being acted upon.

Scorecards and dashboards are a different type of management reporting so you can have more of a visual view of charts to analyze your KPIs and get actionable financial intelligence for data-driven decision making.

There are five Scorecards that cover the five areas of strategic decision-making for CEOs:

Here is an example of 4 charts we suggest you track in a Company Scorecard:

Getting the Data: KPIs

Each industry has its own set of key performance indicators. As a CEO or owner, you should know what they are for your industry. If your company sells products, KPIs typically focus on sales figures, manufacturing costs and inventory turn. A service business would want KPIs to highlight pricing, ROI on labor costs, and cash flow.

Getting the reports you actually need will save time and make you money.

Getting the reports you actually need will save time and make you money.

If you are receiving reports that aren’t directly impacting the business’s growth potential, you are missing out on opportunities to increase profits.

Key performance indicators are a great way to analyze data and provide strategic direction that will improve your business’s profitability. You'll never understand how your business performs without knowing how to keep score with your business.

To produce the KPIs your business needs on a consistent basis, you may find that you need to automate some business processes, like time tracking, or setting up reports in order to calculate additional metrics, like gross profit - both of which are essential for job costing.

You also need to make sure your books are on an accrual basis and not cash basis. Cash basis reports get skewed based on timing of cash in or out. For example, having a bi-weekly payroll means twice a year there are three pay periods in one month. That means payroll costs for those months are 50% higher than in the other ten months. Said another way, those two months are wrong because the net income is understated and the other 10 months are also wrong because the payroll is understated. 

Accrual accounting records the income that was earned and the expenses that are incurred, regardless of when the cash went in or out the door.

Business Decisions: Data-Driven vs Gut-Driven

The most important job of a CEO is to set a clear, strategic vision for the company and to get the company aligned around that strategy. Not all CEOs are created equal and some naturally focus on strategy and the long run, whereas others are focused on the tactical and the most urgent fire.

That’s also a difference between an Entrepreneur and a CEO.

Many Entrepreneurs are primarily tactical, focused on the latest crisis to hit their desk. A CEO’s job is to work at a higher level, creating a vision and getting a team to rally around that vision.

To be a strategic leader, we recommend a CEO commit 15-20 percent of his or her time (roughly the equivalent of one day a week) to focus strategically. This will help make sure the other 80-85 percent is the most effective use of their limited time.

Inside the Mind of a CEO

CEO Brain-v2To help CEOs focus their strategic thinking, we have organized the mind of a CEO into five areas of business where decisions need to be made.

To make data-driven decisions, you need to understand the key drivers of your business. Once you know those influencers, you can start developing your KPI reports to help you keep track.

The key to turning financial data into actionable, financial intelligence is to be able to look at each number and compare it to what it was supposed to be. If a business driver is important enough to track each month, that driver should have a budget.

What are the resources or processes that are vital for the sustained growth and success of a business?
Those become your plan and your key metrics need to be measured against that plan.

By studying the variances against your plan, a strategic CEO can more quickly figure out where to focus their time and where to take action.

Finally, you need to watch your KPIs over time. This will ensure that you do not respond emotionally to the most recent financial results. By studying the trend lines, especially Trailing Twelve Months (TTM), you can understand what’s really happening in the company over the long term.

Once you take on the mindset of a strategic CEO and understand the kinds of decisions you’ll need to make, you can ask the right questions to determine which KPIs are right for your business. How then do you leverage your accounting system to set up a KPI monitoring system?

Summary Conclusion

When two companies compete in the exact same target market, with the exact same product, why is one wildly successful while the other struggles to survive? After serving over a thousand small businesses, we have studied why, and have come to one solid conclusion:

Winners keep score.

In a football game, the final numbers on the scoreboard rarely tell the story of how the game was won. Digging into the statistics, such as: time of possession, turnovers, passes completed and yards gained, paints a better picture of how the game was won.

So how do you keep score in your business?

The same is true in business. Like a savvy football coach, a CEO must understand how to get actionable, financial intelligence and review reports & scorecards about past performance to drive future results.

It’s about using your business’s data to help you make data-driven decisions that will increase profits and grow your business.

How do you build a scorecard with the KPIs to help you make better decisions for the success of your business?

Build your company scorecard with The GrowthForce Scorecard Template

In business, those actionable statistics are called: Key Performance Indicators or KPIs. These are the pre-determined, measurable drivers of the business that catalyze a company’s business success. These are the statistics that CEOs must monitor to help their businesses run better, grow faster and make more money.

Less is More

When it comes to KPIs, less is more. One mistake a business owner often make is tracking metrics just because they can.

The fewer items you track, the more valuable each metric becomes.

Not only does it cost money to create and have managers trying to figure out each report; if you focus on everything you aren’t focused on anything.

Limit yourself to as few KPIs as possible just getting the key information you need to make decisions.

Don’t Change Your Culture

The most profitable companies know that culture eats strategy for lunch. Whatever you do, don’t let this Keeping Score program and your new KPIs change your culture. In fact, you should do the opposite. Use your KPIs to reinforce your core values and culture.

For example, at GrowthForce we have a core value of Teamwork. That means we value team members more than individual high performers. Our actions and incentives are designed for one accounting team to work together. That means we use our "P&L by team" reports to get all managers working together in order to help the lower margin teams, rather than using KPIs to get individuals to compete against each other.

By using KPI scorecards, a CEO can confront business’ financial realities - just like a coach with a winning playbook.

The CEO’s Guide to Keeping Score gives management a roadmap to improving a company’s bottom line. Successful CEOs and businesses are more likely to be using KPIs to produce actionable, financial data for informing their business decisions.

As valuable as the traditional financial statements may be, they do not slice and dice the most important profitability metrics, which should form the basis of your business decisions.

Service-oriented companies, in particular, should use KPIs that scrutinize the relationship between pricing, staffing and cash flow.

Put Your Numbers to Work by creating a monitoring system for leading indicators, and learning how to read your KPIs to make data-driven decisions.

KPIs can help you set pricing strategy, determine your best performers (clients and employees) — which helps you figure out where to focus your sales reps and which marketing campaigns to invest in — and stay on top of your cash flow.

When business leaders fully grasp concepts like gross-profit percentage, they can better identify their profit drivers. By identifying and monitoring custom KPIs for your business, you will be able to focus on your most profitable customers and clients.

A business owner may find that outsourcing or augmenting their accounting department to a third party is what they need to get on the right track to keeping score.

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