"Right-sizing" small business financial management for strategy, planning and decision-making purposes.

Constructing Dashboard Indicators for Small Business Decision-Making

October 1, 2026

My last newsletter featured a discussion of loan covenants and how banks and other financial institutions use these to monitor and manage their exposure to credit risk. It ended with a summary of practices small business could follow to increase their access to external financing, prompting the question of what can small business do to manage the loan covenant process?

First, a Rehash of the Covenants
A look at the table used last month summarizing lender loan covenants provides direction on the substance of indicators small business can use to organize information and use it systematically for planning and decision-making purposes.

The table shows a mix of priorities, all linked to each other to help small business with useful, timely and comprehensive information for effective decision-making:

• Financial covenants showcase the need for relevant ratios and indicators for ongoing assessment of performance and financial strength (or lack thereof);

• Reporting covenants highlight the importance of frequency and accuracy;

• Operational covenants relate to the need for internal reporting efficiency and synchronization of systems to ensure management is on top of risk-related issues;

• Negative covenants represent guardrails for lenders to manage their credit risk exposures; these can be adapted by business to set goals and objective for growth and enhanced productivity—for instance, renegotiating capital expenditure limits if sufficient cash flow and financial strength are in place;

• Affirmative covenants relate to operational covenants by demonstrating that management is a full partner with the lender by providing relevant information, including on payments to third parties (e.g., tax payments, insurance coverage).

How Do the Suggested Practices for Small Business Fit?
A condensed version of the suggestions from last week for small business included:

• Fine-tune internal and tax statements and link with a more comprehensive FAS;

• Structure and format FAS to align with external creditor/investor systems;

• Establish a comprehensive list of relevant ratios by activity and monitor these on a continuous basis;

• Ensure all information and systems have adequate cyber protection;

• Map out guidelines on backtesting to determine how valid the assumptions and premises are for any use of sensitivity or scenario analysis or models;

• Commit to regular internal reporting and monitoring on a systematic and regular basis.

[For the full list and identification of relevance to decision-making, see https://www.linkedin.com/pulse/much-ado-something-loan-covenants-small-business-fit-mike-borish-m7gwc/ -or- borish.com]

These suggestions do not correspond one-to-one to the overview of covenants described above, yet are all relevant. How do they tie together? The graphic below briefly shows how they relate.

Financial Reporting Practices and Loan Covenant Compliance

Dashboard Indicators
With the general relationship now in mind, the next challenge is how to construct such a system. The short answer is that there is no single or perfect way to create a system to address all the issues associated with creditworthiness monitoring and access to financing for small business. Each company, industry, sector and market is different. However, there are common features and indicators that can help small business get started with a viable system.

Last month, we summarized commonly used covenants in loan agreements. These included:

• Debt Service Coverage Ratio (DSCR) covenants requiring minimum cash flow coverage of debt obligations;

• Leverage covenants limiting total debt relative to equity or EBITDA;

• Interest Coverage Ratio covenants requiring minimum earnings relative to interest expense;

• Liquidity covenants requiring minimum current ratio or cash balances;

• Loan-to-Value (LTV) covenants limiting borrowing relative to collateral value;

• Capital expenditure restrictions to limit excessive investment or acquisitions;

• Dividend restrictions preventing excessive shareholder payouts during periods of stress;

• Restrictions on additional borrowing and related-party transactions;

• Reporting covenants requiring periodic financial statements, audits, and operational reporting.

Small business dashboards can be constructed by department, operating division, business unit, etc. to capture what is most relevant for its particular activity. Note that these would originate as data sets specific to the operations of the specific profit or cost center, and serve as an input into the kind of dashboard system we are discussing. This is for both internal uses and decision-making, as well as for ultimate use in dealings with external financial institutions. A production line in an industrial plant will have different indicators from an HR department and personnel management functions. However, these internal data will ultimately need to be interpreted as part of a larger whole that relates to the financial performance and condition of the company.

Therefore, whatever internal cost accounting data used to track productivity, costs, performance, output, etc. will serve as an input into the general financial accounting system. As these costs and data sets are aggregated and converted to financial accounting terms, they are then used to construct the financial profile needed by management to make key decisions on how to allocate resources, construct budgets, monitor performance, and ultimately borrow and invest.

To do this, small business can use some of the same categories noted above to ultimately consolidate the kind of financial profile needed for management decision-making. A simple mapping (in this case, consolidated to provide a simplified snapshot) could be depicted as follows:

The Bottom Line
Internal (and largely cost accounting) data are the logical starting point for dashboard indicators used to gauge internal performance. However, as these data ultimately are only relevant when compared with others competing for the same markets and investment, they need to be converted to financial accounting data and formats. Once done, the data are then relevant as a benchmark of performance compared to peers and competitors, as well as the broad universe of other small businesses competing for bank loans, equity investment, and consumer purchases.

My book Right-Sizing Strategic Financial Management for Small Business provides a long list of indicators that can be used across the spectrum to capture these requirements. While those indicators are too numerous for any particular newsletter, it is important to have them properly compartmentalized for analysis and decision-making. In this regard, small business management can be more systematic in planning and decision-making, which should also increase their chances of becoming financially stronger, more creditworthy, and more likely to gain access to external financing. Constructing relevant dashboard indicators is a good place to start, as long as they are relevant by activity, and part of a comprehensive vision for the company in terms of its goals, objectives and capabilities.

Final Note

Please feel free to suggest topics of interest that you and colleagues would like this newsletter to cover. (You can reach me on LinkedIn (https://www.linkedin.com/in/mike-borish-90a4321) or on my website: borish.com

Sharing with your colleagues and posting these can help stimulate the dialogue.

I’ll be back November 2 with my next one. Until then, have a good month.

#creditrisk #dashboards #smallbusinessfinance #loancovenants