Summary presentation on understanding Financial KPIs in small businesses and using business intelligence techniques.

1. Business
Finance
KPI’s
For
All
-­‐
Tutorial
By
Rob
Connell
CEO
of
Smeebi
and
Nathan
Balakrishnan
of
Ten
Forward
Finance
Cer=fied
Accountants
Wednesday, February 20, 13

2. CONTENTS
Introduc=on
3
Educa=on
2
Conclusion
5
2
Wednesday, February 20, 13

3. Introduc<on
Why
do
businesses
need
KPIs
and
real-­‐<me
analysis?
If
you
were
to
believe
everything
you
read,
it
is
both
the
best
and
the
worst
=me
to
go
into
business.
The
pressures
on
small
businesses
has
never
been
greater.
According
to
sta=s=cs
published
by
the
Small
Business
Administra=on
(SBA),
seven
out
of
ten
new
employer
establishments
survive
at
least
two
years
and
51
%
survive
at
least
five
years.
The
key
reason
they
give
for
failure
is
mismanagement.
“Over
the
years
Ten
Forward
Finance
have
had
many
clients
approach
us
for
assistance
with
a
failing
business.
In
truth
the
majority
of
the
issues
they
experience
turn
out
to
be
due
to
poor
financial
management.
However
,
we
also
see
another
worrying
trend;
the
lack
of
easy
to
understand
‘Real-­‐
Time’
informaHon”
Nathan
Balakrishnan
TFF
Too
many
business
owners
spend
hours
pouring
over
mul=ple
spreadsheets,
P&L
reports
and
calcula=ons
with
liQle
end
product.
Whilst
there
are
many
different
aspects
to
this
problem,
one
issue
we
will
look
at
in
detail
is
the
use
of
Key
Performance
Indicators.
Wednesday, February 20, 13

4. Vital
Informa<on
KPIs
provide
small
business
owners
with
an
immediate
snapshot
of
the
overall
performance
of
their
business.
In
today’s
compe==ve
business
environment,
it
becomes
highly
important
for
the
owner
to
have
real-­‐=me
data
concerning
the
health
of
his
business.
The
small
business
owner
should
measure
and
track
the
key
performance
indicators
crucial
to
the
success
of
his
organiza=on.
These
important
KPIs
provide
vital
decision-­‐making
informa=on.
Educa<on
The
act
of
measuring
KPI
promotes
an
atmosphere
of
learning
in
an
organiza=on.
According
to
Root
Cause,
the
data
generated
from
measuring
key
performance
indicators
fosters
cri=cal
conversa=ons.
These
discussions
educate
all
personnel
involved.
KPI
Defini<on:
Key
Performance
Indicators
(KPIs)
can
be
defined
as
measures
that
provide
managers
with
the
most
important
performance
informaHon
to
enable
them
to
understand
the
performance
level
of
the
organisaHon.
KPIs
should
clearly
link
to
the
strategic
objecHves
of
the
organisaHon
and
therefore
help
monitor
the
execuHon
of
the
business
strategy.
Wednesday, February 20, 13

5. Considera<ons
KPIs
have
a
certain
level
of
importance
in
an
organiza=on,
but
only
if
the
KPI
leads
to
acHonable
steps
to
achieve
a
goal.
For
example,
a
company
that
establishes
a
KPI
to
increase
customer
reten=on
does
not
have
a
chance
of
reaching
this
goal.
The
goal
does
not
have
a
measurable
component
that
results
in
ac=onable
steps.
If
the
company
revises
the
KPI
to
increase
customer
reten=on
by
10
percent,
it
now
has
a
measurable,
quan=fiable
goal.
The
company
must
convert
the
measured,
quan=fied
data
into
ac=onable
items
to
meet
its
goal.
Here
are
some
examples
of
the
type
of
KPI’s
that
you
may
find
useful:
Improvement
in
Profitability
Improvement
in
Revenue
growth
Improvement
in
net-­‐new
customers
gained
Improvement
in
customer
sa=sfac=on
Wednesday, February 20, 13

6. What
do
you
want
from
your
business?
These
are
very
important
measures,
but
we
have
o]en
found
that
the
key
strategies
of
many
business
owners
can
be
a
lot
more
fundamental.
Typical
ques=ons
to
ask
are:
Are
you
just
star=ng
out,
have
you
been
running
your
business
for
a
few
years?
Are
you
looking
to
sell?
Would
you
like
more
free
=me?
Do
you
want
to
generate
enough
free
cash
so
you
can
be
mortgage
free
in
3
years?
These
are
all
key
business
objec=ves.
Whether
we
realise
it
or
not,
in
order
to
achieve
them
we
need
to
set
very
clear
and
measurable
target
KPI’s.
Let’s
look
at
some
examples
of
the
goals
that
you
might
want
to
set
and
therefore
the
KPI’s
that
you
may
need
to
measure:
Growth
Company
Ltd
A
company
in
its
second
year.
Their
goal:
Cashflow
for
growth
and
Owners
wealth
crea=on.
Started
with
capital
and
loans
from
its
two
owners.
Company
that
has
two
lines
of
income:
So]ware
that
is
has
the
a
license
to
distribute
Consultancy
fees
for
specialist
advisors
to
install,
train
and
follow
up
on
installa=on
of
so]ware
Wednesday, February 20, 13

7.
Growth
Company
Ltd
has
two
clear
goals
Generate
funds
to
re-­‐invest
in
further
so]ware
and
training.
Owners
want
to
withdraw
further
funds
by
year
3
–
pay
off
those
mortgages.
So,
where
are
the
problems?
Let’s
take
a
look
at
revenue;
revenue
is
increasing
but
look
at
Gross
Margins
for
period
midway
through
2011.
Whilst
revenues
dropped
for
consultancy,
the
revenue
for
so]ware
sales
increased.
However
the
margins
reduced
dras=cally
–
squeezing
profits
and
cash.
Why?
Issue:
Gross
margin
Drilling
down
into
GM
and
Revenue
and
COGS,
it
turns
out
the
terms
with
the
so]ware
license
company
weren’t
as
good
KPI’s
for
these
goals:
as
was
first
thought.
Solu<on:
Debtor
Days
Look
for
ways
to
improve
the
margin:
P&L
a]er
tax
Increase
consultancy
work.
They
have
approached
a
similar
so]ware
reseller
with
a
Gross
Margin
beQer
deal.
They
will
now
need
to
analyse
this
Revenue
later
on.
So,
gross
margin
becomes
an
important
KPI.
The
monthly
target
will
be
35%.
Current
Ra=o
Wednesday, February 20, 13

8. Issue:
Cash
at
Bank
Bank
Balance
and
Debtor
Days
View
screen
showing
various
related
KPI’s.
Cash
at
bank.
Debtor
Days
-­‐
the
=me
it
takes
for
customers
to
pay.
It
turns
out
this
business
has
not
been
par=cularly
good
at
chasing
its
debtors.
They
have
strict
terms
with
its
consultants
and
so]ware
licensor,
all
of
whom
they
have
to
pay
within
21
days.
But
their
customers
can
take
up
to
3
or
4
months.
Solu<on:
Employed
a
credit
controller
and
tasked
them
to
reduce
debtor
days.
They
have
a
basic
wage
and
a
bonus
=ed
to
the
debtor
days
result
for
each
quarter.
The
business
will
be
able
to
use
the
cash
to
re-­‐invest
in
either
new
so]ware,
key
skills
or
for
the
owners
to
take
out
some
large
bonuses
.
For
this
they
will
par=cularly
want
to
keep
an
eye
on
P&L
a]er
tax
and
Reserves
Available
-­‐
Funds
available
for
distribu=on.
Of
course
as
we
o]en
learn
–
the
rela=onship
between
profit
and
cash
at
bank
is
o]en
tenuous.
The
amount
of
=mes
I’ve
heard
clients
remark
“where
has
all
that
gone?”
when
they
see
the
boQom
line
of
profit
for
the
year.
Wednesday, February 20, 13

9. Growth
Company
Ltd
financial
ra<os
Growth
Company
Ltd
Current
Ra=o
has
been
gradually
declining.
Obviously
a
symptom
of
some
of
the
other
issues
noted
above.
However,
if
the
business
is
looking
for
finance
and
the
bank
has
indicated
that
it
needs
to
see
a
Current
Ra=o
of
at
least
3,
then
this
would
be
a
minimum
target
to
set.
We
all
know
how
hard
it
is
to
get
any
sort
of
lending
One
of
the
most
important
and
oldest
financial
ra=os
that
banks
and
lending
ins=tu=ons
use
when
assessing
a
poten=al
client
is
the
Current
Ra<o.
Being
able
to
quickly
and
consistently
monitor
such
a
ra=o
is
invaluable
for
many
of
our
clients
who
are
regularly
looking
at
op=ons
–
financing
equipment,
short
term
overdra]s.
What
is
Current
Ra<o?
A
liquidity
raHo
that
measures
a
company's
ability
to
pay
short-­‐term
obligaHons.
Also
known
as
'liquidity
raHo',
'cash
asset
raHo'
and
'cash
raHo'.
The
Current
RaHo
formula
is
Current
RaHo
=
(current
assets
/
current
liabiliHes).
Typically
a
raHo
of
between
1.5
and
3
indicates
a
healthy
business
at
least
for
the
short
term.
Wednesday, February 20, 13

10. So
how
can
Smeebi
help
Growth
Company
Ltd?
We’ve
iden=fied
some
clear
issues
and
some
targets
,
and
we
can
now
pro-­‐ac=vely
use
Smeebi
to
track
KPI’s….
Smeebi
can
help
business
owners
to
analyse
their
finances
in
a
way
that
is
produc<ve,
prac<cal
and
easy
Budgets
for
next
quarters
and
next
year
What
are
the
KPI’S
for
the
next
quarters?
Need
to
improve
on
Debtor
days;
Target
of
45.
Improve
Gross
Margin
(introduce
new
op=on
of
so]ware)
35%
Monitor
Current
Ra=o
–
min
3
Increase
reserves
by
X.
Wednesday, February 20, 13

11. Conclusion
We’ve
been
able
to
see
that
KPI’s
are
important.
As
well
as
historical
analysis
Smeebi
also
has
a
neat
budget
tool
that
allows
planning
to
see
impact
on
KPIs.
Here
are
the
key
messages:
Keep
it
Simple
–
3
or
4
KPI’S
Be
clear
about
end
goals/objec=ves
Set
aQainable
and
realis=c
Goals Examples
of
KPI’s
to
monitor
and
react
to:
Ensure
they
can
be
accurately
measured Revenue Your
cri=cal
income
from
sales.
Set
aside
regular
=me
to
analyse
Debtor
Days
How
this
impacts
cash
flow.
Profit/Loss Retained
earnings
for
dividends
and
reinves=ng.
Acid
Test
&
Will
you
meet
your
Current
Ra<o obliga=ons?
Gross
Margin How’s
your
cost
control
and
pricing?
Wednesday, February 20, 13

12. About
Smeebi
Smeebi
started
life
in
2011
in
Finland,
a]er
its
founders
recognised
a
genuine
need
for
a
business
intelligence
solu=on
designed
specifically
for
small
and
medium
sized
businesses.
Their
vision
is
to
develop
a
powerful,
yet,
user
friendly
solu=on
for
SME’s.
Unlike
most
other
enterprise
BI
products
on
offer,
Smeebi
has
been
created
around
an
affordable
subscrip=on
based
model,
simply
ready-­‐to-­‐go
online.
Smeebi
are
passionate
about
empowering
SME’s
with
a
beQer
understanding
of
their
data,
and
remain
focused
on
developing
solu=ons
that
solve
some
of
the
key
challenges
that
small
businesses
face;
saving
=me,
keeping
track
of
what’s
going
on,
and
ul=mately,
making
beQer
informed
decisions.
Feel
free
to
follow
us
or
contribute
to
these
discussions:
twiQer.com/Smeebi
facebook.com/Smeebi
To
read
the
latest
BI
news
and
product
updates
please
visit
our
blog
on
www.smeebi.com/
blog
Wednesday, February 20, 13