By: Jessica A. Distel, CPA, MBA - Director of Business Services
It all starts with an idea, a dream, a determination like no other. I have been amazed at the creativity and courageousness of entrepreneurs I have had the pleasure to work with. While most have easily conceptualized their vision to provide an amazing product or service, they struggle to understand financial statements and develop useful ways to measure the condition and sustainability of their small business. Key Performance Indicators, or KPIs, can be extremely useful and comprehensive tools to gauge how effectively a company is accomplishing its business objectives, as well as compare its operations to others in the industry.
While understanding a balance sheet, income statement, and cash flow statement is very important, incorporating financial KPIs can be a powerful tool to easily and timely measure the components of your business that are important to you today. You can keep a pulse on your cash flow, profit margin, revenue growth trends, overhead costs, inventory turnover, accounts receivable and accounts payable turnover, budget variations, and so much more. Most importantly, these KPIs are customized to your needs, your business, and relevant industry data that matters to you. The analysis of KPI trends can help you more clearly identify cash flow concerns, the effect of changes you have made to operations, and revenue trends.
Non-financial KPIs can also be very powerful tools. While financial KPIs may be able to measure revenue or gross profit, non-financial KPIs may be able to better explain why the monetary fluctuations occurred. Some examples of non-financial KPIs are customer satisfaction scores, payroll headcount ratio, days sales outstanding, resource utilization, marketing metrics, and much more.
Creating a KPI dashboard can be a comprehensive approach to see a snapshot or scorecard of your business that reflects the measurables that are most important to you. By grouping KPIs into a dashboard, you can create a very powerful insight into your operations and visual of the execution of your business objectives.
If you have any questions regarding how you can incorporate KPIs into your business operations, please contact one of our team members at Buckingham Advisors.