Being able to reasonably forecast upcoming problems has become an essential skill for business owners — but too many are flying blind, or doing “bank balance accounting”.
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Using KPI’s For Your Business
“It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.” – Franklin D Roosevelt
If you measure your key metrics you can manage the performance of your business, AND you can see problems well in advance of when they might show up in revenue or profit figures.
Each and every business has key performance metrics (KPI’s), some of which are common to other businesses, some are industry-specific, and some companies create their own KPI’s.
These sort of things are our bread and butter, when working with small businesses.
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Financial metrics are often common to all businesses. Some examples include:
* Average transaction value.
* Gross profit margin.
* A measurement of a company’s efficiency during the production process.
* How much is left over after COGS.
* Gross Profit divided by Total Revenue.
* Net profit percentage.
* The amount of profit for every $1 of revenue generated.
* Net Profit divided by Total Revenue multiplied by 100.
* Debtor days or receivable turn days.
* How long your customers take to pay you. (The sooner your customers pay, the sooner you can get that cash working for you.)
* 365 (days in the year) divided by (Sales on credit or invoice divided by Average Accounts Receivable).
More industry-specific KPI’s might include:
* Table turns per night.
The number of times a restaurant is able to sit customers at a table.
The number of hours a machine in the production line can run.
* Rejection rate.
The number of defects rejected in an assembly line.
Non-industry-specific KPI’s might include:
* Customers won/lost.
* Customer complaints/product returns.
* Staff sick days.
You must absolutely integrate the RIGHT measurements to get proper insight on your business’ performance.
I hope this gets your juices flowing. Many of these financial indicators are things that WE can help you to implement … if you let us.
Ibanessa S Hogan
Masterpiece Accounting Services