Most business owners are familiar with the basic financial reports that help them understand whether they have generated a profit or loss. The standard profit and loss report is usually generated by your finance manager or bookkeeper showing all the sales and costs recorded within a defined period.
Many are less familiar with the kind of management reports available that actually them to understand how to improve or increase performance and profitability.
As a business owner you should easily be able to find the answers to the following questions.
• Did I make enough profit in the month to meet by goal i.e. my budget?
• If not why not?
• How does my profit compare to last month or the same month last year?
• Did the company make more this quarter than last quarter?
• Am I pricing jobs accurately?
• Did that project generate sufficient return?
• Who are my most and least productive staff?
The way that these types of questions are answered are through performance reporting which can be condensed into three types.
1. Management Accounts
Management accounts are not mandatory unlike financial reports (profit and loss and balance sheet). Management accounting allows you to focus on segments of the business so for example, a profit and loss by division, a profit and loss by department within that division, down to individual profit or cost centres within that department. Management accounts are essential to gain insight into specific areas of the business. If you, as a business owner are not receiving management accounts then you could be missing out on information that help your business grow.
2. Product Performance Indicators
Product key performance indicators (KPIs) are metrics that measure your product’s performance. They help you understand if the product is meeting its business goals and if the product strategy is working. Without KPIs, you end up guessing how your product is performing. Choosing the right indicators is not always straightforward
• State your business goal for your product
• Make your goal measurable and realistic
• Use ratios and ranges in cases where absolute information is not known
• Use both qualitative and quantitative performance indicators
3. Project Performance measurement
When we’re measuring the performance of a project, we are interested in the impact the project has at a point in time, or over a fixed timeframe. Projects by their very definition have a start point and an end point. The reason we do projects is to make a difference and usually the difference we’re trying to make is to make some kind of improved result. Again, the choice of the right indicators needs some further consideration
• Difference between the level of performance before and after the project
• Bottom line impact – Return on investment
• Project on time and on budget
So, it is clear that there is much more value in obtaining regular detailed information through the three performance reporting mechanisms mentioned above. Such information will paint a picture of how the internal workings of the organisation are doing and thus assisting with more informed decision making.
If you are interested finding out more about performance reporting and how it can perhaps help your business, please get in touch with us.