Business is hard. As an owner, you see your entity as the complex machine it is versus the simple customer solution that you market to the public. The day-to-day operations of a business can be overwhelming before you even have time to think about the next day or week, yet you have to be thinking ahead to payroll, lease payments, profits, and the like. With the fear of failure and the weight of success, how do you take control of your business? Breathe.
Your business is yours to conquer, and with the right key performance indicators (KPIs), you will! KPIs help you get ahead and stay there by looking forward to the future and measuring what you’re doing in business. Undoubtedly, you have explored various solutions, but maybe they didn’t solve your problems in the most efficient way. Let’s discuss what your business needs the most and which KPIs will be best for you.
Analyze Your Situation
Because every business is different, your needs and goals are unique, too. In order to be successful, you can never compare your business to another. Use tools of measurement that are relevant to your business, such as:
- Size
- Life-cycle
- Industry standards
Consider factors that are specific to you personally:
- Your unique circumstances
- Your short and long-term goals
- Your passion for what you do
Maybe your plan is to create an establishment or product that is sellable in five years. Your success route is going to look different than the mom-and-pop product in the local shop that has been around for 50 years. It also means you will most likely not be adding the same personal touches to your business because your goal is to sell.
Know Your Areas of Impact
Now that you know what is important to your business, you need to look for areas you can evaluate and measure. The methods you use to gauge the impact of processes, operations, and products should revolve around four basic concepts:
- Efficiency –In all aspects of your operation, you will find areas that can be/are impacted by efficiency. This one is easy to overdo, so be mindful. Start simple, but ensure efficiency is always a factor in what you’re striving to do.
- Growth –Consider what areas of your business can afford growth. This could include your need for a future kitchen expansion to keep up with customer growth in a restaurant. It also might mean there is room for staff growth in regards to group dynamics and customer relations, or maybe you need to grow your vendor list to get more competitive prices on products and supplies. Think outside the box, because growth is everywhere, but focus on what is most relevant first. You need paying customers lined up before you can financially support expansion, or you need to start testing new vendors immediately because you cannot sustain the prices of your current one(s) much longer.
- Health –This area is all-encompassing and relates to all of the target areas. You need your employees to have healthy relationships with everyone from customers to colleagues for optimal success. You need safe and sanitary physical environments to keep your doors open. You need to be physically healthy to be around to run your business, which means not overworking yourself or putting your body under immense stress. So what can you do to create monitorable processes that keep everyone healthy?
- Resilience –You need to be able to examine how your business can withstand problems because you are going to face expected highs and lows. It’s only a negative whenever you continually respond poorly. For example, let’s say your business had a bad two weeks because your target audience was out of town on spring break. Did you study what your business should do to recover in the following weeks? If you’re not creating a plan to recover and increase revenues after spring break while effectively creating a game plan for next year’s slow season, you’re creating future problems.
These four areas of impact are interwoven, but look at them individually and see what sticks out in your business. How do you already cater to these areas of impact and how/what can you improve?
Solve Your Pains with Metric Tools
Now that we have discussed what is important to your business and you know where to look for solutions, how do we not only qualify but quantify what is happening? KPIs! Below is a list of key performance indicators that will help your business quantify and evaluate its efficiency, growth, health, and resilience in the areas that matter to you.
- Cash Flow Forecast –Helps you assess if your sales and profits will be enough to cover your expenses allowing you to detect and solve problems before they arise.
- Gross Profit Margin as a Percentage of Sales –Shows you your total profits as they compare to revenue, and allows you to identify if you’re paying suppliers more than you’re netting from customers.
- Funnel Drop-Off Rate –Expresses the number of visitors that are not being converted into paying customers and at which point in business you are losing their attention.
- Revenue Growth Rate –Allows you to track your business’s rate of revenue growth, loss, or stagnation.
- Inventory Turnover –Tracks your ability to move your product, which can show weaknesses in your sales items or purchasing schedule that can adversely affect cash flow.
- Accounts Payable Turnover –Reveals how much you pay suppliers each month and at what rate you pay them so that you can determine your ability to maintain timely payments that will keep your business operating.
- Relative Market Share –Lets you see how much of the market your business controls and how you compare to your competitors.
Some tools may seem like they’re too advanced for your operation at this time, but don’t think that way. The only way to solve your business stressors before they happen is to get ahead of them with preventative plans. Use tools like those mentioned here or even create special ones just for your business, and start tracking where you’re going instead of waiting until you get there. Utilize skilled and trained professionals for help if you can.
If you can create links between your operation’s processes and the areas of impact then you can find the appropriate KPIs that relate to tracking your business’s performance in those areas. Start using these KPIs today to eliminate business pain points, reduce stress, and stay ahead of your business’s finances.
To gain a better understanding of the measurement tools above, take 5-minutes to read Quickbooks’ article on KPIs too. For help analyzing your situation, examining your areas of impact, or developing KPIs for your business, contact Class One Bookkeeping today.
Recent Comments