Most successful business people use Key Performance Indicators (KPIs) to help them analyse their business’ performance on a regular basis.
It is a good idea for your business to determine, from budgets and previous financial results, the Key Performance Indicators that relate to your business and then have the Key Performance Indicators calculated daily, weekly, monthly, quarterly and annually as required, so that the actual Key Performance Indicators can be compared back to budget estimates to give management an indication as to whether the business is currently performing satisfactorily.
Some Key Performance Indicators that would apply to most businesses include:
- Gross Profit Percentage
- Labour to Turnover Percentage
- Debtors’ Days Outstanding
- Key Expenses such as rent-to-sales, expressed as a %
- Stock on Hand – number of days sales
- Conversion Rate (actual sales to prospects)
- Stock Turnaround
- Average Sale
- Creditors’ Days Outstanding
- Average Sale per Customer
- Shrinkage Percentage (retail stores)
- Sales per square metre
- Net Profit on Sales %
- Productive Time %
- Individual Department Sales to Total Sales
- Yield % (for a processing business)
- Write Off/On % (professional firms)
All of these help management to understand the financial “health” of the business. It is a good idea to establish Key Performance Indicators that have a direct bearing on the performance of your business and for management to closely examine these on a regular basis.
What are the KPIs you keep an eye on in your business?
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Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
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