It is important to track your business performance through pre-established KPIs. Key Performance Indicators (KPIs) are the tools you can use to track the progress of your business. It is essential that you set and update KPIs for all functional departments of your business and then track the progress on monthly basis. Tracking the progress against your business KPIs will help you be proactive in taking necessary actions on areas of your business that are under-performing. KPIs represent the overall business strategy and it varies from business-to-business. It is always recommended to make decisions at the right time based on the progress evaluation against your KPIs. We have outlined some of the important KPIs that will help your business track the overall business performance.
1 Revenue Growth
You need to monitor how the revenue graph is moving to compare it with last year's revenue data. If there is an outlier, you need to identify the reasons and make sure you are tracking your business for the sales revenue. Revenue growth is one of the most important indicators of success for any business. The objective is to ensure that you have positive revenue growth. Negative revenue growth is alarming and that you need to take corrective actions.
2 Income Sources
You need to analyze all of your income sources so that you can determine profitable customers. It is important to have the details of revenue per customer so that you can divert all of your marketing mix efforts to benefit your profitable customers in a number of ways.
3 Profitability
The monthly horizontal analysis of the profitability element of your business will help you control operational expenses and also enable you to identify the reason for high or low profitability. This indicator will ask you to have a close eye on your competitors’ business operations as well.
4 Working Capital
Working capital is also one of the important KPIs which gives meaningful information on the key elements of current assets and current liabilities. Working capital is the amount you have available to run day-to-day operations. If your business keeps sending invoices and the aging report gives you insightful information, you need to identify which customers are regular in their payments and you should charge interest on all overdue accounts.
5 Current Ratio
The Current Ratio KPI divides current assets by current liabilities to give you an understanding of the solvency of your business in short-term i.e., how well your company is positioned to meet its short-term financial obligations consistently on time. This KPI will ask you to monitor that you have enough liquid assets to pay for short term obligations without facing any liquidity problems.
6 Debt Equity Ratio
Debt to Equity is a ratio calculated by looking at your business's total liabilities in contrast to shareholders' equity. This KPI indicates how your business is depending on the external funding and how well you are utilizing your shareholders' investments. A high debt-to-equity ratio reveals that you are relying mostly on the external sources of finance. This will incur interest expense and that will reduce your business profitability.
7 Customer Satisfaction
Customer satisfaction is the ultimate indicator of your business. The potential for long-term success lies in customer satisfaction. The Net Promoter Score (NPS) is the result of calculating the various levels of positive response that customers provide on different customer satisfaction surveys. The NPS is a simple and accurate measure of likely customer retention rates.
Key Performance Indicators (KPIs) can help your business reach new heights in a competitive business world. If you’re trying to make strategic business decisions for your company, you should first use Key Performance Indicators. These measures can help you better understand business dynamics and you can certainly perform well in your business.
GTA Accounting is well versed in business analysis and cash flow management. Contact us for a free consultation and we can help you better understand and setup your KPI's for your business.