Key Performance Indicators (KPIs) are measurable values that show how effectively a business is realising its key objectives. How you measure the success of your business is vital to ensure you meet your overall strategic plans and objectives. Measuring KPIs helps you understand your business from top to bottom.
Many business owners are too busy running their business and lose focus on their goals and business performance.
Good use of KPIs can help business owners improve profitability, raise finance, take advantage of tax savings, help with profit withdrawals and keep investors happy.
Depending on the size of your business and its industry, there are financial KPIs which all businesses should be measuring:
Cash Flow
Track and monitor your cash flow to identify any shortfalls and surpluses.
Gross Profit Margin
Your gross profit margin measures the profits you are making before deducting any overhead costs – this is useful for benchmarking your performance over time.
Net Profit Margin
This measures business profitability after all expenses, interest and taxes have been deducted from the total revenue.
Operational Profit Margin
This shows how good a business is at controlling costs.
Revenue Growth Rate
This demonstrates sales increases and decreases over time. It shows how fast a business is growing and helps you ensure your business grows at the target rate.
Liquidity Ratio
This measures how well the business can afford to meet its short term liabilities, helping you to understand the solvency of your business.
Earnings Rate Before Interest, Taxes, Depreciation & Amortisation (EBITDA)
This focuses on underlying operational profitability, regardless of capital investment.
Creditor and Debtor Days
Monitoring your creditor and debtor days could have a significant impact on cash flow as they describe the average number of days you take to pay your suppliers, and the days your customers take to pay you.
We produce a Business Performance Review Report for a client’s year-end meeting and delve beyond the numbers to make the figures more meaningful. The Annual Business Performance Review Report contains:-
- KPIs that underpin your business together with an explanation of exactly what they mean and how they can be improved.
- A visual cash flow forecast demonstrating how cash has been used by the business for the past 12 months.
- An analysis of the top ten biggest spend accounts.
- A visual break even analysis showing how much the business has to make in sales before it makes profit, and much more.
As Business Advisers, we can help you decide which KPIs are important for your business.
For further help or advice on how you can measure the performance of your business or to arrange a free no-obligation meeting, please do not hesitate to contact Lee Sugden on 0161 761 5231 or email lee.sugden@horsfield-smith.co.uk.
