Alan Miltz | How to generate a monthly financial scorecard

This system helps to eliminate business blind spots, using the strategic monthly board reporting process.

===
System Architect: Alan Miltz
Website: www.cashflowstory.com
Generated as part of the www.BusinessSystemsSummit.com

Smart operating procedure

Step 1: Create a one-page monthly financial scorecard.

  • One-page financial record that contains 4 chapters.
    • Chapter 1: Profitability – your profit.
       
    • Chapter 2: Working Capital – equals = (Receivables + Inventory or Work in Progress) – Payables 
       
    • Chapter 3: Other Capital – your Balance Sheet.
      • Funding (Net Debt + Equity) = Net Operating Assets (Working Capital + Other Capital).
    • Chapter 4: Funding and Returns – your funding as measured by your cash flow.
      • The quick way to calculate Chapter 4 is the movement in all your bank accounts – that’s the reconciliation of cash.
    • Further examples here.
       

Step 2: Calculate and include your marginal cash flow on your financial scorecard.

  • Marginal cashflow calculation: Gross Margin % – Working Capital %
    • Formula = (Gross Margin / Revenue) – [Working Capital (Debtors + Inventory / WIP + Creditors)/Revenue]
       

Step 3: Create visibility in your company.

  • Create your Ideal profile/target for each measure in your Profitability and Working Capital.
    • Colour code your business for each of the measures Good (Green) / Average (Yellow) / Bad (Red) for each of the business ratios.

Step 4: The financial health review process.

  • Review your one page scorecard and the colors (green, orange, red) that you are getting each month.
    • Look at your trends in Working Capital
      • Working Capital Timeline (Creditor Days, Stock Days, Debtor Days)
    • Profitability trends (Gross Margin %, EBIT %, Net Profit %)
      • Revenue Growth vs. Overheads Growth

Step 5: Define actions based on 7 levers to improve business.

  • On a quarterly basis discuss with your management what changes can be made to move the 7 levers to improve profit, cash flow and business value:
    1. Price increase %
    2. Volume increase %
    3. COGS reduction %
    4. Overheads reduction %
    5. Reduction in Debtors Days
    6. Inventory / WIP – reduction in Stock Days
    7. Increase in Creditors Days

Step 6: Rinse and repeat – review results and define new actions.

e0beff9e5f4184030a8d0a45886db41e.png

Videos

Attachments

Supporting notes

 

Tags

  • finance
  • Business Systems Summit
  • Alan Miltz