Do you have a clear view of the current state of your business’s finances? Financials aren’t only a vital indicator of how well a business is performing — they can also be used to shape overall business strategy. To get more out of their financial data, many businesses rely on tracking and analyzing specific key performance indicators (KPIs), or metrics, to better illustrate the financial performance of their company at any given time and inform their business decisions.
It’s standard for businesses to track universal metrics, like average sales, gross profit, etc., but there are countless other KPIs that can paint a clearer picture of your business’s financial situation. Not sure which KPIs you should be tracking to determine your financial health? A KPI’s significance may vary depending on your business’s industry and structure, but here are a few essentials that should be monitored on a regular basis:
- Cash Runway: The amount of time your funds will last at the current cash burn rate.
- Zero Cash Date: The predicted date your business will run out of funds given the current rate of spending.
- Operating Cash Flow Ratio: A measure of how many times a company can pay off its current debts with the cash made within the same period of time.
- Revenue per Employee: A rough estimate of how much money each employee generates for your business.
- Current Ratio: A ratio used to determine a business’s ability to pay its short-term obligations (typically those due in one year’s time).
- OpEx as % of Revenue: Illustrates how much money it costs to run a business against how much money is being made by that business to determine how effective or ineffective management is.
- Headcount Distribution Ratio: Also known as the sales-per-employee ratio, this KPI illustrates the efficiency of businesses that rely on people to generate revenue, like retailers. It essentially measures how many sales are being made by each employee.
- % of Salary by Department: The percent of a business’s overall budget allocated to each department within a business.
- Current Accounts Receivable: This measure shows the money currently owed to a business by its debtors.
- Current Accounts Payable: This shows the money currently owed by a business to its creditors.
These KPIs are great for helping a business understand its cash flow, where expenses are coming from, just how much revenue is being generated, and which teams or individuals the revenue is being generated by. They also help business owners determine how financially sound their operations are so that adjustments can be made if necessary. When it comes to tracking KPIs, it’s important to note that, oftentimes, less is more. As you review your financial metrics, if you find any that just don’t align with your analytical needs, it’s okay to stop tracking them and instead hone in on the metrics that are insightful for your business.
You can amplify the power of your KPIs by using software that can not only track your metrics but also visualize your data on dashboards so that you can interpret your data quicker and better forecast what the future may hold. Dashboards allow you to customize how your KPIs display so that you can analyze both historical and predictive data at a glance. They also provide a full-picture view of how your business is performing financially so that you can target the areas that need improvement and analyze the areas that are succeeding — leading to increased growth and productivity.
At Creative Planning Business Services, our outsourced accounting offering uses technology that can help you unlock the financial insights you need to drive your business forward. Our innovative services include KPI tracking, real-time dashboards, financial forecasting, budgeting, comparison reporting, workforce planning, cash flow analysis and more!
Want to learn more about what our outsourced accounting services can do help your business gain financial clarity? Schedule a meeting with our team — we’d be happy to discuss service options.