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KPIs: What are they, and which ones count?

6/28/2022

Is your business feeling a little stagnant? Have you taken a deep dive into your KPIs?

Tim Bradshaw, Director of 415 Access—the firm’s new division that provides the full complement of bookkeeping services along with controller- and CFO-level services—explains the importance of KPIs in helping businesses grow.

When working with small businesses, I love helping them formulate a good, solid strategy that will help them grow. That’s why KPIs are near and dear to my heart.

KPIs, or key performance indicators, are a way to report your progress toward your goals. Each KPI should be actionable and specific to your business. Keeping these measurements focused will help prevent data overload and allow you to prioritize the work you do. 

Many small businesses don’t have the information they need to create a strong growth plan. They often stall out after years of financial growth and hit a natural ceiling. KPIs provide the information business owners need to break through to the next level. They act as guide posts to help you spot trends and identify issues that need a closer look.

Speaking of finances, KPIs can relate to metrics beyond money. For example, a factory can track warehouse capacity and workflow efficiency. Another example is tracking how much time a marketing agency is spending on each client. Creating actionable KPIs will help your bottom line in the long run.

When we work with clients of 415 Access, we discuss what data they’re already tracking, as well as the data they would like to track but are unsure how. We’ve worked with numerous clients across various industries, so we can also suggest ideas they might never have considered.

Once we’ve been tracking KPIs for a while—or even after combing through their existing data—we help them formulate a plan to continue executing well on the ones that are succeeding and suggest ideas to improve the problem areas.

The end result of culling all this data may seem intimidating to sift through. Thankfully, we now have an in-house expert who creates informational dashboards for our clients. Using Power BI – the dashboard software – we can pull in financial and operational data from various sources like QuickBooks and Excel to create visual representations of your company’s performance.

These customized dashboards allow you to see real-time data so you can make real-time decisions. Our guidance with this tool will help you drive performance metrics. 

Taking the time to develop a strong growth plan based on your KPIs will make all the difference in the end. If you’re looking to improve your business and take it to the next level, reach out to us at 415 Group today.

Management needs timely, accurate feedback to guide operating decisions, anticipate problems and take advantage of emerging opportunities. Unfortunately, comprehensive financial statements take a long time to generate. Reporting key performance indicators (KPIs) on a monthly or weekly basis is a simplified alternative to gauge performance in real time.

Popular financial metrics

KPIs measure an organization’s progress toward its objectives. However, with so many metrics to choose from, data overload can easily happen. That’s why your KPI report should be customized and streamlined to cover the metrics that are the most critical to your success.

KPIs differ from one company to the next based on the industry and the company’s objectives. Common examples include:

Operating cash flow

This helps management evaluate how much cash is available for immediate spending needs. Poor cash flow, not slow sales or lagging profits, is one of the leading causes of business bankruptcy.

Return on assets

This metric equals net income divided by total assets. It measures how effectively your company is managing its assets to generate earnings.

Inventory turnover

The number of times inventory is converted into sales is usually computed by dividing cost of goods sold by the average inventory balance. This tells you how efficiently you’re “selling through” inventory. Many companies waste valuable cash by allowing slow-moving inventory to sit idle on their shelves for too long.

KPIs can also be industry specific. To illustrate, auto dealers might compare new vehicle sales to used vehicle sales; contractors might focus on the bid-hit ratio; and hospitals might want to know the average wait time in the emergency room or the bed occupancy rate in the intensive care unit.

Beyond the numbers

Many companies also include nonfinancial metrics in the areas of customer service, sales, marketing and manufacturing. However, nonfinancial KPIs must be both specific and measurable.

For instance, just saying that your company wants to “provide better customer service” doesn’t produce a sound KPI. Instead, if your goal is to improve response time to customer complaints, a relevant KPI might be to provide an initial response to complaints within 24 hours, and to eventually resolve at least 80% of complaints to the customer’s satisfaction.

Benchmarking results

A basis of comparison is important when reviewing KPIs. Benchmarks will provide a standard against which you can compare to see how your KPIs stack up. You can benchmark your current KPIs against historical results or averages published in trade publications.

This will help you spot trends and identify potential problems, allowing you to deal with them before they worsen. For example, if your accounts receivable days are lengthening, it might indicate that your collections are lagging and a cash flow crunch is looming.

Unlocking the keys to success

During the pandemic and the ensuing economic turmoil, tracking relevant performance metrics is more important than ever. Threats and opportunities abound — and new ones seem to arise quickly. We can help you tailor your KPI report to meet your business needs, as well as find meaningful benchmarks based on current market conditions – reach out to us today.

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