This may sound a little odd coming from your CPA, but waiting for your financial statements to tell you what is wrong in your business is foolish. Why? Because by the time your financial statements are complete, your problem has been festering in your business for weeks costing you your hard earned money.
Managing Without Financial Statements
The most successful businesses manage by reports that are not based upon the financial statements. These reports are filled with data that is known as Key Performance Indicators or KPIs.
Every business owner should know their KPI's because they represent the key data a business owner needs to manage their business in todays fast paced business environment. Most KPI's should be reported daily or weekly to management.
Determining Your KPI's
A KPI should provide a clear picture of things that you have determined are important to your businesses success. For KPIs to be useful, they must be quantifiable and have an established correlation to the business financial results.
Some KPI Examples:
- Number of new customers and their source;
- Number of repeat customers;
- Percentage of on-time deliveries;
- Conversion rate (percentage of prospects who become customers);
- Employee turnover;
- Average sales per customer
- Lifetime value of customer
- Defect/product return rate
- Marketing cost per client.
As you can see, KPIs are often non-financial measures that don't have a place in typical financial statements, yet they can provide you with very important information that impacts your financial results.
"What Get's Measured Gets Done"
KPIs are also extremely useful as an incentive to boost employee productivity and efficiency. If your employees are aware that their bonuses are directly influenced by the number of customer complaints or the number of projects completed 'on time', you'll find they put in extra effort in those areas.
KPI's and your Financial Results
Properly utilized, KPIs can be an invaluable tool for managing your business. The results from using KPI's as a management tool, will improve your bottom line, leading to a more profitable business, higher employee morale, a loyal customer base and a satisfied business owner!
Need Help Determining your KPI's?
If you need help developing KPI's for your business, give me a call. We can sit with you and in a matter of hours, identify your businesses KPIs and the reports you will need.