As accountants, we’re used to thinking in terms of quantifying successes rather than qualifying them. We like numbers, that’s why we got into this gig. Business owners get into business because they have great ideas, game-changing products or much-needed expertise to offer, but how are they defining their success? A gut feeling? Sales and high fives at a trade show? Here is where us accounting pros can help. The answer lies in the key performance indicator (aka KPI). That is how you monitor business success.
Before you get nervous about yet another fancy accounting term and more work to add to your list, relax. We’ve created a three-part series on the numbers you need to be aware of. Undertaking an inventory of key performance indicators (KPIs) is an important step in truly assessing your company’s financial strength and sustainability. Moreover, those metrics become a roadmap for growth, help to define your goals, and can illuminate better strategies to reach the next levels of growth. While some of these percentages may seem familiar at first glance, other KPIs may benefit from your accounting team’s insight.
KPI’s can get super detailed, depending on your business type; product/inventory based or service based, but there are a handful of universal KPIs that apply to all businesses. Let’s start there.
Do you monitor if you spend more than you bring in? Do you have a roadmap to adjust this so you don’t run out of cash? Cool - you are already KPI-ing. Many businesses set benchmarks for expense ratios and budgets—making sure they’re within reasonable limits, identifying costs when they aren’t. These KPIs offer a starting point for gauging your company’s operational health. If expenses are too high and that trend isn’t subsiding, it should signal a serious reconsideration of strategy. Ignoring something at this step could mean egregious problems down the line.
If your company can’t navigate reductions in sales or operates with poor ratios already, then this symptom deserves your attention. A company shouldn’t wait until it has large debts or insurmountable cash shortages to realize signs of ill health. There’s no escaping problems at this level.
The proportion of money left over from revenues after accounting for the cost of goods sold. This amount is available to cover overhead and operational costs.
The amount of sales that are above the breakeven point.
The sales revenue less the cost of goods and operations, divided by total revenue generated.
Of total revenue generated, what proportion you’re allocating to yourself as salary.
Cash generated by the operating activities of the business. Operating activities include the production, sales and delivery of the company’s product and/or services as well as collecting payment from its customers and making payment to its suppliers.
The number of customers who paid you for a given time period.
The average sales transaction amount per customer for a given time period.
The ratio of ongoing costs generated from ordinary operations as a percentage of total revenue generated.
Of total revenue generated, what proportion should be allocated for state and federal taxes.
Accountfully has worked with companies of all types to identify pain points and thoughtfully re-orient companies on better paths to success. Giving business owners the resources to track existing KPIs is critical to the success of businesses large and small—and the economic ecosystem surrounding them. With data in hand, you can make decisions on attainable objectives that represent success and sustainable growth.
Let’s talk. Tell us about your business and we will see where we can help support your goals.