The best way to evaluate the success of your business is to use key performance indicators, or KPIs. These indicators are core metrics which are used to monitor progress toward financial results and main goals within a company. The values which are used to assess success can help you make key decisions about your own business’s development and growth.
These key performance indicators need to be assessed as a whole to really understand the overall picture within a business. Measuring KPIs means that you have the ability to thoroughly understand your company from the ground up, which will in turn allow you to make strategic decisions for improvement. By focusing on the right KPIs for your industry, you can easily and quickly establish any potential issues, as well as what is working effectively. If the management team in charge of monitoring those key indicators finds that one or more of them are not aligning with expectations, implementing different strategies can be the target, and sometimes you’ll find it is the KPI itself which needs adjusting. Performance monitoring methods need to reflect where you want the attention of your staff.
KPIs vary by industry, but there are still some key performance indicators which should be tracked across the board. Here are some KPIs which will help you to measure the success of your company.
Cash Flow
It is important to establish a Cash Flow Forecast, as well as understanding how your cash flow is currently operating. A cash flow forecast can help a company determine whether or not their sales and margins are appropriate to their goals, making this one of the most important KPIs for small businesses to measure.
To build your own cash flow forecast, you can add your projected cash value for the next four weeks to your total cash in savings, and then subtract the projected cash for the next four weeks. Perform this task routinely so that you can continue to adjust and identify any problems, as well as potential shortages or surplus funds.
Maintaining an Operating Cash Flow which can be continually analyzed and monitored is the second part of the cash flow piece. Tracking this KPI is crucial to knowing routine operating expenses at all times. You can compare this KPI against your total capital, which will uncover whether or not your company is generating enough cash to support your investments. By analyzing the data gathered from your cash flow as measured against total capital, you will benefit from a deep understanding of the overall financial health of your business, and you will be able to look further ahead than just profits when making new investment choices.
Profitability
Profitability key performance indicators measure the difference between the costs and the revenues needed to operate your business. They measure things like profits and services, expenses, and revenue.
Some of the profitability KPIs you may choose to track within your company include things like: net profit per partner/professional staff/department, average fees per partner/professional staff/manager, and gross margin, which is the amount of total fees billed minus your direct labor costs.
Invoicing
For your accounting needs, cost per invoice and tracking your total number of invoices received are going to work in your favor. Cost Per Invoice KPIs measure the total average cost of processing one invoice within your firm. The amount may seem low, but this can be misleading; hidden costs which have been negatively affecting profit margins can be uncovered with careful analysis. When tracking your cost per invoice, you must remember to include factors like labor and operational costs, as well as the amount of time each invoice spends in the accounts process.
The total number of invoices received is another key performance indicator which should be measured. By comparing this metric with the others you have tracked, everything will be put into perspective once you know just what kind of invoice volume you’re handling on a regular basis. By keeping a careful eye on your total received invoices, it will be easy to identify and predict peaks and valleys, and adjust your cash flow to reflect these changes.
All of your key performance indicators work in tandem to provide you with an idea of the overall financial health of your company. The predictions you are now able to make with a high degree of accuracy based on this data means you can be proactive about implementing any required changes to help fuel business growth. Measuring your efforts thereafter allows for a continual view of what strategies are working, and which ones are not. This will prevent serious losses as well as increasing your business value.
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