Key performance indicators aren't only for big businesses
There is a reason why big businesses use key performance indicators (KPI) – They want to be able to monitor the performance of their business units at a quick glance.
As a small business owner, you may not see the value of having KPI monitoring. Usually you would only see the net profit or sometimes even the net cash flow. So why should you use KPI? It’s simple, you will be able to tell at a glance whether the change in your business is positive or negative.
For example:
You made $100,000 turnover this year.
Your cost of goods sold (COGS) is $60,000.
Your net profit is $40,000.
Next year you made $200,000 with a COGS of $130,000. Your net profit is $70,000.
So we can make a KPI of → Net profit / Turnover
In year one this KPI is 40%
In year two this KPI is 35%
That means your costs have increased. You may not realise this as most business owners will just be happy that they have made more money. However, we being accountants, believe you should also always find ways to improve your business whilst still maintaining the same growth.
Other indicators can be used to measure growth, costs or profitability in an easily comparable figure.
All the information required to produce these KPI’s can be easily acquired from your bookkeeper.
Would you like to find out how to easily compare each period’s performance against another? Please contact us now for a free first consultation so we can get to know your business and advise you further.