Here at iAccounting Solutions, Xero is our first choice in helping small businesses keep better track of of their finances. That’s why when Xero announced the Business Performance Dashboard, we were pretty excited.
What Is It?
In short, the Performance Dashboard is a simple way to check the health of your business. By using simple formulas, you can measure Key Performance Indicators, aka KPI’s, to know how your business is fairing. However, instead of running complex spreadsheets or doing it by hand, in true Xero fashion, they have built them in so you can find and use them easily.
What Do They Mean?
That’s really the important question isn’t it? In the world of Financial Analysis, there are thousands of ratios. But here are the top 4 that we think are most useful to small businesses.
1. Current Ratio
This ratio (also sometimes called the “Quick Ratio) measures your ability to pay your liabilities. A healthy range is 1.5 to 3. Any score below 1.5 means that you may have a problem paying your debts. And anything above a 3, means that you may not be using your assets wisely.
2. Gross Profit % (or Gross Profit Margin)
This is where the numbers get fun! This percentage tells you the amount left over, after you’ve paid for all your costs that are associated in making that revenue, or Cost of Sales. Healthy Gross Profit % generally changes from industry to industry. If you don’t know what your standard should look like, reach out to us, we can help you with that. Comparing it to industry standards can help you determine if you’re paying too much in costs, charging enough for services/products, and a whole range of indicators that show how the health of your business.
3. Net Profit % (or Net Profit Margin)
Perhaps one of the most popular metrics–this tells you how efficient your business is when comparing your expenses, to your net sales. Although, this number varies from industry to industry, 10% or better is considered to be good. You can gauge your overall business success with this %.
4. Accounts Receivable Days
This measures how fast you collect on your invoices. Knowing this allows you to plan around your cash flow very effectively. Knowing this can even prevent cash flow disasters from happening to your business.
In the end, these ratios and percentages are only as good as the information you put into your accounting system. Good reporting is the backbone of any business that wants to grow and succeed.
What Does This Mean For My Business?
Want to have a more in depth conversation about these topics and what they mean? Just fill out our “Contact Us” page and we’ll get in touch. Or, give us a ring. We can explain of these topics common language so you can understand them.Read More