Key takeaways
- Owners do not need to look at every number, but they do need a small set that answers three questions: are we growing, are we making money, and where are the problems?
- A starting set that works for most businesses is seven metrics. Each one needs an accountable person, a target and a threshold that triggers a decision.
- A number that does not change a decision belongs in the team's report, not on the owner's front page.
A monthly report that runs to dozens of pages has everything except an answer to what needs to be done this month. When there are too many numbers, owners fall back on gut feeling and the bank balance when making decisions. A cockpit has hundreds of gauges, but the pilot knows which one to watch at each phase of the flight. The number of gauges is not what keeps the aircraft safe. What matters is knowing which ones signal life or death.
The three questions the numbers must answer
There is no fixed answer to how many numbers you need to know. But the set should be small enough to remember without opening a file, and it should cover these three angles.
| Questions | Starting metrics | What it shows |
|---|---|---|
| Are we growing? | Sales versus the prior year | Real growth, excluding one-off items |
| Backlog or bookings | Revenue visible in advance | |
| Are we making money? | Gross Margin | Quality of sales |
| EBITDA | Ability to generate operating profit before depreciation and financing costs | |
| Where are the problems? | Usable cash and runway | How long we can last if things get worse |
| Cash Conversion Cycle | Days of cash tied up in receivables and inventory | |
| DSCR and Covenant headroom | How far we are from the bank's conditions |
This set must be adapted to the business. A hotel should use occupancy, ADR and RevPAR. A restaurant should watch prime cost. A property development company should watch cumulative sales, amounts due from buyers, construction progress against budget, and cash remaining until the project is completed, because monthly financial statements do not yet reflect this picture.
A good metric has four parts
- One definition. For example, what is deducted to arrive at usable cash. It must be written down and not changed unilaterally.
- A target or benchmark. For example, the plan, the prior year, or the terms in the loan agreement.
- An accountable person. The person who must explain when the target is missed and propose a fix.
- A decision threshold. At what level, what must be done.
Example: the owner's one-pager
A hypothetical example: the monthly report of a company with revenue of THB 20 million a month.
| Figure | This month | Benchmark | Reads as |
|---|---|---|---|
| Sales versus the prior year | THB 20.0 million | THB 18.0 million | Up 11.1% |
| Backlog | THB 45 million | THB 40 million | Visibility of about 2.3 months of revenue |
| Gross Margin | 28.5% | 30.0% | 1.5 points below plan, equal to THB 0.3 million a month of lost gross profit |
| EBITDA | THB 2.4 million | THB 2.7 million | 12% of revenue; the shortfall corresponds to the margin loss |
| Usable cash | THB 14 million | Threshold: THB 12 million | If stress occurs, spending of THB 2 million a month gives a runway of 7 months |
| CCC | 78 days | 70 days | Receivables are stretching; check by customer |
| DSCR | 1.35x | Covenant 1.20x | Cash flow before debt can fall by a further 11.1% before hitting the threshold |
Headroom calculation: assume cash available for debt service of THB 16.2 million a year and debt service of THB 12 million a year, giving a DSCR of 1.35x. A level of 1.20x requires cash of THB 14.4 million, so cash can fall by THB 1.8 million, or 11.1%.
From this one page, the owner can see that sales are not the problem. The problems are margin and collections. This month's agenda should therefore have only two items: why margin has fallen, and the list of overdue receivables.
Do not start by buying a dashboard if the accounting team still closes the books slowly or definitions are not yet aligned. A one-page Excel table with numbers you can trust is more useful than a beautiful chart that nobody believes.
The right frequency
- Weekly: usable cash, overdue receivables, and bookings or sales
- Monthly: gross margin, EBITDA, CCC, backlog and DSCR
- Quarterly: stress test, adequacy of credit facilities, and a review of whether the set of metrics still suits the business
Common mistakes
The first mistake is choosing only the numbers that look good. A company that reports only sales will see problems late. The second is changing definitions too often. If this month's cash includes deposits but last month's did not, the comparison is meaningless. The third is looking only at the latest month. Where there is seasonality, compare with the same month of the prior year and show a trend of at least six periods. The fourth is having numbers but no decisions. If a meeting ends with no follow-up work, the report has not done its job.
Next steps
- Write down the three questions, then choose no more than seven metrics that answer them most directly.
- Write the definition and data source for each metric, so everyone uses the same formula.
- Name the accountable person and the decision threshold.
- Set a fixed reporting date and start with a one-page format.
- After three months of use, drop any metric that has never led to a decision.