Coursework

Accounting systems can provide enormous amounts of information, including full profit statements, balance sheets and details of outstanding debtors, creditors and stock-holding levels. Sometimes they produce so much information that owner-managers cannot cope and prefer to ignore them. In fact, most small firms can be controlled by monitoring, on a timely basis, just six pieces of information that tell the owner-manager different, but vital, information on the performance of the business. These are called financial drivers. They are like the instruments on a car dashboard. They tell you different things about the engine of the business and different pieces of information are important at different times and in different circumstances. On a road with a speed restriction you watch your speedometer. When changing gear at speed you watch your rev-meter. When low on petrol your eye never strays from the petrol gauge. The financial drivers tell you all you need to know about driving the business. The six financial drivers are:
1 Cash
As we have already seen, it is vital to monitor cash. Without cash the bills cannot be paid. For a start-up or when it is in short supply cash may have to be monitored on a daily basis, but most small firms need to keep an eye on it at least on a weekly basis. Actual balances need to be compared to forecasts.
2 Sales
This tells the firm about the volume of activity it is experiencing. This should also be compared to forecasts. If sales are running ahead of forecasts, does the firm have the resources to meet these demands? Current sales may be a good indicator of future sales, but if not, then order books may also have to be monitored. It is sales that always drive cash flow and profitability. It should be monitored on a daily or weekly basis for most start-ups and at least monthly even for an established business.
3 Profit margins
In the process of setting prices in line with projected costs, the owner-manager will also be setting profit