Key Performance indicators let you know how you’re doing – for real. These tracking and measurement tools paint a picture of your organization’s true financial wellbeing.
With the information provided by KPIs, you’re able to see where your weaknesses and strengths are, allowing you to make critical course corrections that save the ship from running aground.
With the insights gleaned from the key financial performance indicators you should be tracking (as detailed below), your business’s sustainability is ensured and its value increased.
In this post, we’ll add to classic KPIs like gross profit, expenses, revenue and net profit with some other metrics that dig a little deeper.
Working capital is just another way of saying “liquid assets”. You’ll arrive at this figure by subtracting liabilities from assets. Factored in are variables like short-term investments, accounts receivable and cash, payables, loans and accrued expenses.
This KPI is crucial as it gauges the ability of your operation to absorb financial liability and weather intermittent storms.
Operating Cash Flow
Is your business generating enough cash to float the investments you’re making to grow it? This metric can establish whether that’s the case.
Analyzing operating cash flow against total capital lets you see how fluid your operation is, by looking beyond the obvious – profits. It’s especially supportive when you’re making major decisions about capital investments.
This KPI divides your assets by liabilities to provide a clear picture of financial solvency. It will tell you whether you’re positioned to meet all your financial obligations in a timely manner, keeping your credit rating intact.
Without that healthy credit rating, you’re going to have a much tougher time growing your business.
LOB Revenue vs. Targets
Here’s where the commercial rubber meets the road. This metric will reveal the truth about projected revenue by comparing it to actual revenue from product sold.
Fundamental to calculating Budget Variance KPI (which compares actual operating budget against projections), this KPI lets you see both how individual departments stack up and whether your budgeting process needs a retool for accuracy.
LOB Expenses vs. Budget
Together with the KPI immediately above (LOB expenses vs. budget), this one is pivotal. Discrepancies between budgeted and actual expenses point to unrealistic budgeting. Again, it will let you know when your process needs reform to better reflect reality.
Knowing how much your projections vary from the final numbers is not only instructional but provides you with incisive knowledge about the relationship between finances and operations.
The Net Promoter Score (NPS), gleaned from customer interface in the form of surveys, addresses the quality of their experiences with your company.
The NPS is acknowledged as an easy way to obtain an overview of customer satisfaction and rates of retention. While it’s not linked directly to your budget, every entrepreneur knows they’re nothing without their customers.
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