Key Financial Metrics to Track for Small Business Owners
Do you feel like you have information overload? Don't know where to start with financial metrics?
You can get great insight by starting to track just one KPI.
Why Track KPIs?
You should track KPIs as a Director to reduce your time and information input each week or month. Understanding key business metrics will provide you with the insight to improve your processes. There is only so much information you can process and make decisions on. If you have too much coming, you won't look at anything and it will all wash over you - sound familiar?!
KPIs or Key Performance Indicators will be different for every business.
Accountants might track the following:
- Retention rate
- New clients signed
- Net margin
- Client satisfaction rate
- Up selling value
- Work completion within deadline %
Creative or Marketing Agencies might track:
- Retained income as a % of total income
- New clients signed
- Retention rate
- Staff costs to revenue
And more but delegation to other department heads is crucial. You just want to see the headlines.
What if you could cut all the data you look at down and just review one KPI each week? Why over complicate the tracking of project profitability? And look at detailed reports of time and cost when you don't have to?
As a Director you should be able to look at headlines and read between the lines. You should be trying to cut down on administration time so that you can spend essential time on more productive tasks.
Setup your key KPI to show time worked on projects against expectation. If your proposal process is effective and your project completes within the allowed timeframe your profit margin is certain. So why bother looking at anything else?
Track whether you are within the allocated time by the project and the client. This KPI should also show if you are likely to complete within the budget.
If the lights are green, then look no more. If the lights are Amber or Red, you need to dig into which project is causing the overrun.
Ask the following:
- Is the cost rechargeable to the client?
- Is it our fault or the clients?
- Can we learn from this and adjust our service level agreement going forward?
If your teams are having weekly project meetings to look at timesheets versus milestones, your dashboard should be green and your meeting should last 5 minutes. You can therefore return to a more productive activity, confident that everything is ok without you.
There are other areas to review but identifying critical KPIs in all areas of the business is the key to reducing information overload.
Areas might include:
- How many invoices raised?
- What was the average value?
- What's the net profit margin?
- What's our utilisation %?
These are the examples of headlines you should be looking at, discussing takeaways and compiling actions to complete over the next week, month, quarter and year.
This is the only way to you grow a lifestyle business into a serious SME without working 80 hours a week.
Read What Is Your True Cost of Sale to learn how to correctly calculate your gross profit margin, one of the most important indicators of a business's efficiency.
Would your business survive unexpected financial difficulty? More than half of new small businesses do not make it past 5 years of trading because they fail to prepare. Join us on the 13th of July to learn how to save your business from becoming a statistic of failure.
As always, we enjoy being in the business of providing clarity to small business owners. That's why we offer free consultations, so that we can help you achieve success on your terms. Why not book in? After all, it's free.
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Tags: Financial Metrics