Do you use Key Performance Indicators, or KPIs to help measure the success of your business? If not, how do you record the areas of business to improve on?
Debt/equity ratio and gross profit percentage are all ways in which we can measure the success of a business. KPIs will be different for each business, however the methodology is the same when it comes to setting them. The most important part about setting business KPIs is being strategic. Some results on their own may not be as effective as comparing multiple outcomes to get an idea of the bigger picture.
Here are some tips to creating KPIs to help measure the success of your business and in turn make better strategic decisions.
Which industry are you in?
As mentioned above it is important to base your metrics on the industry you are in. Your accountant will be able to help you decide KPIs specific to your business, but as a loose framework try to answer the following before you book a meeting:
– Establish the exact industry you are in.
– What size is your business?
– What are your short term and long term goals?
– Do you have any personal circumstances that could affect these outcomes? For example, you may be planning a family.
What are the types of KPIs you should be looking at?
It can be tricky at first to establish effective KPIs that not only measure the success of your business but offer valuable feedback to make future strategic decisions.
KPIs should be:
– Relevant to your business
– A balance of long term and short term measurements
– If you have staff or partners, make sure they understand the KPI and why it is important to the business
– Both Financial and Non-Financial KPI’
What are Financial KPIs?
Financial KPIs are derived from your accounting system. Your accountant will be able to strategically guide you with these based on your overall business finances. Your accountant can help you to determine many of the following to set meaningful KPIs:
– Net Profit Percentage
– Cash Flow Forecast
– Debt Ratio
– Average Margins
– Inventory Turnover
– Potential Market Share
What are Non-Financial KPIs?
Non-Financial KPIs are aspects of your business that are outside of your accounting system. For example, you may have a KPI set to measure the amount of contact form enquiries you have on your website. Or you may be looking to build your newsletter database by a particular number each month until you reach a set goal. Do you know your funnel rate drop off? How many clients sign after meeting with you and how many go elsewhere? Are there parts of the process that can be improved upon?
Depending on the accounting firm you are with you may be able to book a meeting to help determine your Financial and Non-Financial KPIs.
At Aspect Accountants and Advisors we offer not only financial business planning but also strategic planning through our Business Consulting and Coaching Program.