At some stage as a business owner, an employee or as a student, you will have come across the term ‘Key Performance Indicators’ (or KPI’s for short).
The definition of a KPI is “a measurable value that demonstrates how effectively a business is achieving key business objectives”.
It’s a quick and easy way to see how the business is performing against the strategic plan and industry benchmark.
[Book your free business KPI-setting consultation here]
Furthermore, KPIs can be both financial and non-financial. No two businesses are the same, so the KPIs will always be geared towards your business (and goals).
How do they help you as a business owner?
Let’s start with a list of different types of KPIs:
- Debtor days – an average of how long it takes for debtors to pay you
- Payable days – an average of how long it takes for you to pay your bills
- Gross Profit Margin – the margin that you make on each sale after costs to produce
- Break-even point – the point at which costs and revenue are equal
- Wages & on-costs as a percentage of sales – the percentage of wages that contribute to sales
- Occupancy rates – the rate of rooms booked vs total rooms
- Conversion rates – the number of proposals accepted vs total proposals prepared
- Average sale – what is the average sale of the business
[Related reading: How compliance can transform your business]
Three benefits of using KPIs
1) They allow you to have a quick snapshot of the business’ performance.
KPIs are a wonderful leveller when we are trying to grow. There’s no hiding behind them; only accountability.
2) They allow you to be proactive, rather than reactive.
Spotting a decline in sales early – through regular reporting – means you can make decisions now and put things back on track.
Spotting an increase in your debtor days can allow you to chase up outstanding debtors prior to them becoming too late.
3) They allow you to make better-informed decisions in real time.
Live data is wonderous for the switched-on business owner. Take control of your performance by regularly reviewing your KPIs.
The sniff test
The problem? We speak to many business owners who operate on old figures, the sniff test and sometimes, the smell of an oily rag.
It’s just not sustainable for long-term growth.
But what if you had a strong reporting policy? Think about the benefits of live, up-to-date accounting data, giving you time for some forward thinking and accurate decision making?
Each morning you could log in and could see the performance of the business for the previous day, week or month.
At CHN Partners, this is a reality. We’ve helped many clients who are benefiting from live data via implementation of Xero, Receipt Bank & Clarity.