Which Indicators Are Relevant for Managing Your SME?
“I receive a lot of figures, but I don't know which ones I should focus on.”
Revenue, margin, profit, cash flow, backlog, inventory, number of new customers, payment terms, production volume…
Businesses have access to a wealth of information, and digital tools now make it possible to produce an ever-increasing amount of data, more quickly than ever before.
However, having access to a large amount of information does not necessarily mean managing a business more effectively.
For a business leader, the challenge is not to monitor every available figure, but to have key performance indicators (KPIs) that provide a quick understanding of the company's situation, highlight significant changes and help anticipate the decisions and actions that need to be taken.
This is precisely the purpose of a management dashboard.
Indicators Defined According to Business Needs
There is no universal set of indicators suitable for every SME.
The relevant information depends in particular on the company's activities, business model, organization, stage of development and the challenges it faces.
A manufacturing company, a service company, a project-based business or a distribution company will not necessarily need to monitor the same information. Even within the same type of activity, the choice of indicators will also depend on the sector in which the company operates.
A project-based business, for example, will closely monitor its backlog and project progress, while a distribution company will focus particularly on inventory turnover and margins by product category. A service company, meanwhile, may pay closer attention to team utilization rates or the profitability of its projects.
Priorities may also change over time. A fast-growing company may pay particular attention to its cash requirements and changes in the components of its working capital requirement, while another may focus primarily on understanding changes in its profitability or activity levels.
The first question is therefore not “which indicators should I monitor?”, but rather “what information do I need to understand and manage my business?”
Relevant indicators can then be defined based on these needs.
Indicators can also be defined by function, department or activity to enable each manager to effectively manage their own area of responsibility.
Indicators to Understand and Take Action
An indicator viewed in isolation rarely provides all the information required.
An increase in revenue does not necessarily mean an improvement in the company's profitability. Management accounting, discussed in a previous article, makes it possible to go beyond this overall view by analyzing the contribution of different activities, products or customers to profitability.
Similarly, a company can generate a profit while still experiencing cash flow difficulties. Profit should therefore not be analyzed independently of cash flow and changes in the Working Capital Requirement (WCR). These topics have been covered in dedicated articles.
The value of a management dashboard therefore lies less in accumulating data than in selecting and combining information in a way that gives meaning to the changes observed.
A good indicator should help identify a trend, draw attention to a potential variance and, where necessary, investigate its causes and determine what action should be taken.
It can be tempting to include all available information in a management dashboard.
The risk is that this results in a highly comprehensive document that is difficult to read and, ultimately, rarely used.
Instead, a management dashboard should remain concise and focus on a limited number of indicators. It should enable important information and any variances from forecasts requiring particular attention to be identified quickly.
This also means distinguishing between the information required for the overall management of the company and the more detailed information that operational managers need to manage their own activities.
The objective is therefore not to have as many indicators as possible, but to provide the right level of information at the right level of responsibility.
The content of the dashboard should also be able to evolve. An indicator that is relevant today may become less important tomorrow, while a new challenge may require the introduction of specific monitoring.
Reliable Information Available at the Right Time
Not all indicators need to be analyzed at the same frequency.
Some information may require close monitoring when changes could quickly affect the company's activities or cash position. Other information is more meaningful when observed over a longer period.
The appropriate frequency therefore depends both on the nature of the indicator and on the company's ability to act in response to changes.
Information that becomes available too late loses some of its value. Conversely, continuously monitoring an indicator on which no immediate decision can be made may unnecessarily consume time and resources.
The right frequency is the one that ensures information is available early enough for action to be taken.
However, relevant indicators alone are not enough. They must also be produced from reliable, sufficiently up-to-date information that is readily accessible without requiring a disproportionate amount of time each month.
This is where the organization of the Accounting and Finance function and the tools used become particularly important.
As discussed in our article on accounting automation, automation can reduce manual processes and make reliable, actionable financial information available more quickly.
Developments in artificial intelligence should also progressively facilitate data analysis, the detection of certain variances or anomalies, and the identification of trends.
An effective management dashboard is therefore not the one that contains the most information. It is the one that enables the business leader to quickly identify what is changing, understand where to focus their attention and take action at the right time.
Key Takeaways
✓ There is no universal set of indicators: they should be defined according to the company's activities, business model, organization and challenges.
✓ A management dashboard should remain concise and focus on the information that is genuinely useful for decision-making and managing the business.
✓ Each level of responsibility requires a different level of information: managing the company as a whole does not require the same level of detail as managing a department or a specific activity.
✓ Information must be reliable and available early enough to identify changes and enable the company to take action.
Afine Conseil supports SME business leaders in implementing and improving their management tools by working with them to define the information best suited to their activities, organization and challenges.
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