You could easily have a decade span of information monitored in your reports. You can keep along the last 3 to 5 years of finance and project for the next 3 to 5 years. That is a good span of information to help you in your short and long term decisions.
Misleading reports
These are examples of reports that some of our clients told us they used to make decisions and projections.
Total payroll as absolute figure or as percentage of cost
Lumping together all staff salaries, including front and back office, is unhelpful. Actually, it can get you into trouble as it disguises performance measures. It can of course help you size up the cash you need at the end of each month for your wages pay. But that is it. If you don’t divide that payroll per function and unit of work to see variability and differences, your productivity will stay a mystery until it is too late.
IT and insurance as absolute figure or as percentage of cost
Your accountant may be encouraging lumping together all costs for IT and insurance for simplicity. These days the two costs have two different uses. IT’s role in delivery is growing. A portion of it may actually be a Direct Cost and should be monitored as such.
Sales and General Expenses as absolute figure or as percentage of cost
This is known as SGA. The total amount says nothing. In fact, you always want your sales costs as a separate budget and percentage indicator. It helps you make your sales accountable for their cost and monitor hidden expenses. It can tell you whether you can really afford to fly to Dubai to meet prospects this year, for example.
Number of Days Outstanding over Due Date
Unfortunately, most accounting software packages include the due date as a measure. By the time your software starts highlighting the outstanding invoices, it is too late. Most contracts include a 30 day payment notice and over due date is already over 30 days. However, most of your expenses are within the 30 days period. Relying on your ‘days outstanding over due date’ keeps you running after cash. You are doomed to pay your bills faster than you get your money in.
You want to monitor real days outstanding i.e. from the date of issuing the invoice to the date of cashing in. Establish a target for collection of a high percentage of your revenue under 30 days, and you will be better off.
Number of clients
Unless you use this measurement year on year to establish client churn and do something about negative churn, the actual number of clients do not tell you anything about the profitability of your business. Sometimes you might want your number of clients to decrease and the value per client to increase, which could be very good for you. You could use it to establish trends in number of clients against the value that they bring and see whether you tend to upload new clients at a higher or lower value than the ones lost. Another useful outcome of looking at the number of clients is to establish account management effort i.e. how many employees you need to service them and support the effort required by an increased number of clients. But apart from that, leave it.
Ignore it when your competitor brags about it on their website; chances are they are quoting clients that have left them years ago.
Average value per invoices
Chances are that you have different type of clients, from major accounts to occasional small value clients; averaging them together will not tell you much about the size of the projects you sell and may even confuse your strategy for growth of current accounts.
Number of invoices issued
This is not a very useful information. Unless you issue thousands of invoices a week and you pay for the paper for each invoice or you need to pay your accountants based on entries.
Revenue per industry
There is not much need to maintain that information. You can check it every couple of years, such as when you establish your marketing strategy or when you want to verify your strategy to see whether the market you think you are targeting is the market that actually buys from you. How much revenue (in absolute figure) is brought by various industries that your clients operate in – unless you have some form of benchmark that can tell you whether you are getting enough ‘share of wallet’ from that industry’s budget for your type of service – do not tell you much.