Continuing our look at the KPIs that might be used by different departments.
Let’s consider what the Finance Manager might need to know.
Then what would benefit the Chief Executive and the Board members.
The Finance Manager
The Finance Manager needs to know the amount of money owed to the business, and the amount the business owes to its creditors. The income still to be collected is called account receivables, and the invoices yet to be paid are account payables.
The credit manager will also calculate the average debtor and creditor days, which show the average number of days it takes for your debtors to pay you, and the average number of days it takes your business to pay its creditors. Again, this will be reviewed against performance in previous periods and years.
These would all be important KPIs to the credit manager, as their job is to collect payments and pay invoices.
The Finance Manager will be more interested in the Current Ratio , a measure of current assets, such as account receivables, and current liabilities, such as account payables. This is a reflection of the companies’ ability to pay all of its financial obligations in one year, and helps the Finance Manager to understand the solvency of the business
Profit and Loss account
Probably the absolute KPI for finance is the Profit and Loss account. This lists the business’s income, cost of sales, and total expenses. It will show a gross profit and net profit figure for the year to date, and last year’s figures. This is normally completed monthly, and an important figure is the net profit or loss month by month.
Continuing our look at what KPIs might be appropriate for different teams, let’s take a look at what the executives will want to track .
The Chief Executive and the Board members are concerned with the overall performance of the company. They will want to see the key metrics for each of their departments – production, marketing, sales, finance, distribution, customer services. This allows them to get an overview of where each department is up to and how they are doing, at a glance.
In particular they will want to see the monthly profit and loss report as it allows them to see at a glance the direction that turnover (income) is going in on a monthly basis, how expenses (cost of sales) are trending, whether they are lower than income, and therefore they can see profitability, month by month and compared to last year.
This information allows them to quickly spot a worrying trend or problematic area and take immediate action to correct the problem.