Jun 30, 2012
My clients are all privately owned, mid- size ($1 million to $20 million in revenue) companies. Each client has from 1 to 3 short metrics that the owners monitor every month, sometimes every week or every day. They are not complicated financial ratios or formulas, but simple and quick data that tell the owner how the business is performing right then, and how it looks in the short term (2 – 4 weeks).
One client measures Quick Liquidity. We track Cash + Accounts Receivable – Accounts Payable and measure the weekly change. We ignore inventory. With this measure, we can tell right away how we have done, and how our cash needs will likely play out over the next week or two.
One client measures a rolling 10 week average of weekly orders received. We can then anticipate production needs, and sales levels for the next month or two.
At yet another client, we measure product purchases as a percent of sales and labor as a percent of sales. Each is compared to the industry average of 30%. We can tell right away how profitable the month will be, weeks before it finishes.
One more example: an engineering client tracks weekly charged hours and realization percent (of the charged hours, how much is billable and how much is written off). We can tell, as the month goes along, what the likely month end sales and profits will be. If they don’t show up in the expected range, we know we have a problem.
None of the metrics are complicated, each is tailored to the specific client business, and there are only a few. Too many is too complicated.