Metrics monitor [report]
You can access the metrics monitor report from:
Menu > Everyone > Report center > Financial Reports > Metrics monitor
Below are the descriptions and calculations contained in each area of the report.
This report is designed with the owner/CEO/stakeholder in mind. It allows the user to monitor how the business is doing. Some may refer to these types of metrics as KPIs, trends or dashboards.
Each metric has a trending chart based on the past 12 months of data. Though the actual figures derived in the monitor are important, the trending over time can be of greater importance.
Report options | AGI | AGI billings/FTE | Client concentration | Collection period | Current ratio | Debt/Asset ratio | Effective hourly rate | Equity | Working capital | Facility expense | Gross profit/sales | Monthly overhead | Months of cash | Operating profit | Payment period | Salary load | Billing efficiency
Report options
This opens an options panel where you can enter your annual full-time hours rate, GL company (If Enabled) and labor budget.
AGI
There is no formula for AGI itself, but it is important to calculate it correctly by using an appropriate definition of COGS (only external expenses specifically tied to a client) because many of the management benchmarks are tied to AGI.
Targets
AGI is calculated through the last complete month
How is it calculated?
AGI is calculated using the following formula (AGI = income - cost of goods sold - expenses). Only expenses associated with a client are used in this calculation. The AGI for each month is calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
AGI billings/FTE
There is no specific benchmark for this, but you should watch trends. Overall it is one of the more useful measurements of how successful your firm is at turning time into money. It accounts for your billable/nonbillable employee mix; hourly rate; and billable efficiency.
How is it calculated?
If Billings/FTE is calculated using the following formula (AGI billings/FTE = AGI/FTE). Full-time equivalent (FTE) can be calculated in one of two ways depending on how your administrative staff's time is accounted for. If your administrative staff does not complete time sheets, specifying a labor budget will be the most accurate. If your administrative staff completes timesheets, do not specify a labor budget and actual timesheet entries will be used to calculate FTE. The AGI for each month is calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
Additional setup required
1. If your administrative staff does not complete time sheets, setting up a labor budget may provide a more accurate FTE calculation.
Client concentration
If any single client has billings representing more than 25% of your total billings, you should consider this a moderate caution. If that moves to 35%, you are in significant danger. "Related source" would gather any related accounts no matter how separated they may seem. Ideally, each client would represent between 10-25% of your total billings.
Targets
ok = largest client is 25% or less
watch = largest client is 35% or less
warning = largest client is greater than 35%
How is it calculated?
Client Concentration is calculated using the following formula (client concentration = largest client total monthly invoice amount/total monthly invoices). The invoice amounts are pre-tax amounts. The client concentration for each month is calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
Collection period
This measures the average age of your receivables, and it should be less than 45 days. The shorter the better.
Targets
ok = 45 days or less
warning = greater than 45 days
How is it calculated?
The collection period is calculated using the following formula (collection period = accounts receivable balance/prior 12 months revenue/365 days). Revenue for each month is averaged for the prior 12-month period.
* Values are calculated once daily upon the first request.
Current ratio
The current Ratio is calculated using the following formula (current ratio = current assets/current liabilities).
* Values are calculated once daily upon the first request.
Targets
ok = minimum 2.0
warning = less than 2.0
Debt/asset ratio
You should have no more than $.60 of liability for every $1.00 of asset. The lower the better.
Targets
ok = 40% or less
watch = 60% or less
warning = greater than 60%
How is it calculated?
The debt/asset ratio is calculated using the following formula (debt/asset ratio = liabilities/assets).
* Values are calculated once daily upon the first request.
Effective hourly rate
It's a simple metric that is influenced by several things (actual hourly rate; billable efficiency; time written off at the invoicing stage; etc.). While there is no benchmark for this number, watch which way it trends.
How is it calculated?
The effective Hourly Rate is calculated using the following formula ((prior 12 months fee income/12)/monthly hours). Monthly hours can be calculated in one of two ways depending on how your administrative staff's time is accounted for. If your administrative staff does not complete timesheets, specifying a labor budget will be the most accurate. If your administrative staff completes timesheets, do not specify a labor budget and actual timesheet entries will be used to calculate monthly hours.
* Values are calculated once daily upon the first request.
Additional setup required
1. If your administrative staff does not complete timesheets, setting up a labor budget may provide a more accurate FTE calculation.
2. You must specify which GL accounts are labor income accounts. This can be done by setting the labor income option in GL account maintenance.
Equity
Equity (or book value, which is the same thing) is what you'd have if you closed the business and walked away, without finding a buyer. You don't want to leave too much equity in the business because your corporation can only protect what's outside its walls. But you don't want too little, either, because that's a sure sign you aren't doing very well at converting time into money or building intrinsic value into the business itself.
How is it calculated?
Equity is calculated using the following formula ((equity = assets-liabilities). Assets include bank, receivable, current asset, fixed asset and other asset accounts. Liabilities include payable, short-term liability and long-term liability accounts.
* Values are calculated once daily upon the first request.
Working capital
Working capital (or net current assets) is the difference between total current assets and total current liabilities and is what finances the business on a day to basis.
How is it calculated?
Working capital is calculated using the following formula ((working capital = current assets-current liabilities). Assets include bank, receivable, and current asset accounts. Liabilities include payable and short-term liability accounts.
* Values are calculated once daily upon the first request.
Facility expense
Your facility expense includes the lease payment and any utilities/expenses associated with the facility itself. These include electricity, water, security, insurance, cleaning, etc. Together they should not exceed 6% of your AGI.
Targets
ok = 6% or less
warning = greater than 6%
How is it calculated?
Facility Expense is calculated using the following formula (facility expense = current month facility expenses/(AGI/12)). The AGI for each month is calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
Additional Setup Required
1. You must specify which GL accounts are facility expense accounts. This can be done by setting the facility expense option in GL account maintenance.
Gross profit/sales
The only information this gives you is the relative percentage of pass-through expenses that are comprising sales. Gross profit is always more important than sales. Net profit is even more important than that.
How is it calculated?
The gross profit/sales ratio is calculated using the following formula (gross profit/sales ratio = gross profit/sales). The gross profit and sales amount used for each month's ratio is calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
Monthly overhead
This number is the combined amount of fee and markup income that you must generate to cover your monthly "nut" in running the business. If you generate less, you'll have to dip into reserves. If you generate more, you end up with a net profit.
How is it calculated?
Monthly overhead is calculated using the following formula (monthly overhead = current month overhead expenses/(AGI/12)). Overhead expenses do not include any expenses charged to a client. The AGI for each month is calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
Months of cash
You should have 2-4 months of overhead expenses in liquid assets at all times. The lower number of 2 months is sufficient if you have no issues with client concentration (one single related source that accounts for more than 25% of your gross profit). If that percentage is 26-35%, you should keep 3 months of overhead set aside. If that percentage is higher, keep 4 months. This money must be in real cash/savings--not accounts receivable and not money that you can borrow. If you elect to strip money out of the corporation and leave less than the ideal number, make sure it is liquid and can be loaned back to the corporation if needed.
Targets
if client concentration is 36% or greater
ok = 4 months or more
watch = 3-4 months
warning = less than 3 months
client concentration between 26% and 36%
ok = 3 months or more
watch = 2-3 months
warning = less than 2 months
client concentration less than 26%
ok = 2 months or more
watch 1-2 months
warning = less than 1 month
How is it calculated?
Months of cash is calculated using the following formula (months of cash = current liquid assets/current month overhead expenses). Overhead expenses do not include any expenses charged to a client. They only include entries made to expense-type accounts (not COGS or other expenses). Liquid assets include only bank and current asset accounts.
* Values are calculated once daily upon the first request.
Operating profit
This is the combined income from the fees you charge and the markup you realize on COGS. It's a very important number because most of the ratios are keyed to it.
Targets
ok = 15% or greater
watch = 10%-15%
warning = less than 10%
How is it calculated?
Operating profit is calculated using the following formula (operating profit = (total sales - (total cost Of goods sold + total expenses))/AGI). All amounts used to calculate each month's operating profit are calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
Payment period
The payment period is calculated using the following formula (payment period = accounts payable and current liability balance/prior 12 months expenses/365 days). The prior 12 months' expenses amount includes the cost of goods sold and is averaged for the prior 12-month period.
* Values are calculated once daily upon the first request.
Targets
ok = 30 days or less
warning = greater than 30 days
Salary load
You should spend no more than 45% of your AGI on compensation. This would include published salary for all employees, including you.
Targets
ok = 45% or less
warning = greater than 45%
How is it calculated?
Salary load is calculated using the following formula (salary load = monthly salary/(AGI/12)). The AGI for each month is calculated for the prior 12-month period.
* Values are calculated once daily upon the first request.
Additional Setup Required
1. You must specify which GL accounts are salary expense accounts. This can be done by setting the salary expense option in GL account maintenance.
Billing efficiency
How is it calculated?
Billable Efficiency is calculated using the following steps
1. Calculate the markup on purchases as the amount billed - Net for billed vendor invoices and prebilled orders
2. Calculate fee Income as AGI - markup on purchases
3. Calculate billable labor as the gross of billable time entries
4. Calculate billable hours as the sum of hours of billable time entries
5. Calculate the average hourly rate as billable labor / billable hours
6. Calculate the billed hours as fee income / average hourly rate
7. Calculate the available hours as the total of all time entries OR the total of available hours for a labor budget
8. Billable efficiency is billed hours divided by available hours