is part of the Informa Markets Division of Informa PLC
This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.
By Wayne Rivers, Family Business Institute
Would you like to have a crystal ball to peer into your construction business’s future? Of course you would! Lots of contractors use dashboards to help manage their companies. Typical dashboard components include volume, gross margin, net margin and head count of employees. If you think about these measures, they're all backward-looking. By the time you get your dashboard report, they’re history. Think about it; when you get your profit and loss statement at the end of the month what can you do about those numbers?
Oh, you might be able to recast a few of them, but what can you do to genuinely affect profitability or margins from last month or last year? There's nothing you can do! You've heard us at various times talk about the difference between accounting and finance.
Put very simply, accounting looks backward, and finance looks forward. In this article, we want to talk about the use of financial forecasting to make your dashboard more forward looking.
The reason historical items appear on contractor dashboards is because they're easy, they're obvious. Someone has compiled the numbers. If you want to be able to look forward, to look into a crystal ball, it's somewhat more challenging. Looking into the future is always harder than looking into the quantifiable past.
In order to create a forward-looking crystal ball and improve the quality of your dashboard, you must drill down into your company and figure out what you can learn from reading the tea leaves. What are your leading Indicators?
What measures can tell you today where your company will be six or 12 months down the road?
Here are a few items.
Developing a forward-looking management dashboard can give a contractor real insight into not just the history of how the company has done in the past, but how the company is likely to perform in the future. Your dashboard can be your crystal ball.
Wayne Rivers is the co-founder and President of The Family Business Institute, Inc. He has authored four books on the subject of business families the latest of which is Our Family Business Crisis and How It Made Us Stronger. Wayne has appeared on the Today Show, CNN, MSNBC, CNBC, "BusinessWeek: WEEKEND" and on the Retirement Living Network. Wayne is a Wall Street Journal Expert Panelist and has also been honored as a Fellow of the Family Firm Institute.