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How To Set Smart Financial KPIs for Your Business: 3 Indicators To Start With

By Sean M. Hugo, CPA

Establishing revenue streams that yield long-term, sustainable results is often difficult for businesses, especially small ones. Between accounting, reconciliation and a million other tasks, business owners often overlook methods to reach their full potential when it comes to profit. 

Part of it is because there just is not enough time, but a large part of it is because businesses do not have the metrics and tools to really dive in. Any business that wants to survive and grow must set goals for itself, and what needs to be measured and track in order to achieve this goal.

Double exposure of businessman hand working with new modern computer and business strategy as concept.jpegWhile many businesses look at large concepts such as "profit" and "gross revenue" as the main definition for success, but that may not serve as much purpose in the long run. Instead, businesses looking for sustained growth should meet with their accountant set key performance indicators that work for their business model to measure success.

In this scenario, your accountant will be your best resource to understand what indicators make sense for your business. There is no one-size-fits-all approach when it comes to setting up KPIs.

You must look at your business holistically, and understand where the revenue streams are and how they must be incorporated into long-term business goals.

Many businesses use KPIs such as "revenue per employee" or employee turnover as one metric of measurement. Employees and their longevity is a major performance indicator, as it demonstrates that your business is providing both value and incentives for your employees to stay.

Similarly, turnover is also an important indicator in understanding employee happiness and overall business health.

The key to setting up valuable KPIs is to work with your accountant to understand what makes sense for your industry, and how competitors are measuring their performance. Your accountant is the best person to consult with in this instance as they not only understand your business and its financial health, but are also viewing it from the inside out.

Your accountant will be able to provide valuable insight on how best to measure KPIs, what their timeline needs to be and how best to review results. Moreover, they will be able to identify what KPIs will truly provide valuable insight rather than just using arbitrary measures that may not fit with your overall business.

Establishing KPIs

Furthermore, KPIs need to established for each division, as this is the best way to derive a holistic picture of exactly where your business stands and where the gaps are.

The results from the KPIs will ultimately become the foundation of your business strategy moving forward, so it is essential that these measures are truly worthwhile.

Some KPIs to consider for initial measurement include:

1) Operating Cash Flow

This KPI will show your business the total amount of money generated by daily operation. It is crucial as it signals whether a business is able to maintain positive cash flow for growth, or if it will need other financial measures. Operating cash flow is a way to measure financial viability and understand what its growth prospects are accordingly.

2) Converting Leads to Clients

Another KPI that is not always measured, but really must be is how often leads are converted to clients. It will demonstrate just how effective marketing efforts are, and address any gaps within marketing strategy. Lead to client conversion is an incredibly effective KPI to get a deeper understanding of how viable the revenue stream is and what needs to be done to drive more conversion.

3) Employee Engagement

Perhaps a more difficult KPI to establish from the outset, but employee engagement is a metric that makes or breaks a business. Understanding how engaged employees are, whether they are satisfied with their work and employment and how best to address their concerns is absolutely vital for any business. 

These are just some examples of the many KPIs a business can use to measure success. Working with an experienced accountant is crucial during this process, as they will able to guide you through the process and ensure that you set the correct yardsticks to measure and drive success.

Free Online KPI App

We believe every business owner should have access to and know their key performance indicators. Click here to try out our free KPI app, no download necessary. This free app is like a quiz.

Simply answer a few easy questions about your business (like your industry & number of years in business) and our free app will generate a report on which KPIs you should be watching and how other business owners like you are performing.

Please let us know how it assists you in your business! We love to get feedback!