KPIs Are Important For Owners

Having a background in accounting myself, the concept of having KPIs (key performance indicators) for your business, outside of the typical accounting reports, was a difficult concept for me to grasp. I was used to monitoring financial statements on a regular basis, and I thought that was sufficient for monitoring the health of the business. I looked at profit levels and cash levels... what else could possibly matter?? As it turns out, good KPIs are far more than just the cash balance and profit percentage. Any experienced business owner knows there are other items that should be watched on a regular basis.

As the owner of your company, you should take the time to determine which numbers truly matter in your business. Generally those will include cash-on-hand, revenue numbers, and profit percentages, but those few are never enough to truly tell you how to truly lead your business going forward. Good KPIs include both backward-looking numbers and forward-looking numbers, not just historical.

When forming your KPIs, keep these key items in mind:

• Historical / backward-looking numbers. Monitoring the change in items such as cash balances and profit levels is definitely key to properly managing your business. These numbers don’t tell you enough in order to make decisions in advance of problems, but they are a good indicator of past performance and trends. These should definitely be watched on a regular basis.
  

• Forward-looking numbers. Having KPIs that can help you forecast the future is very important as well. Such numbers could be the current number of deals in the pipeline, customer traffic data, or the number of sales calls. Forward-looking KPIs should help you forecast what coming months or even years may hold. With forward-looking KPIs, you can better make decisions today before problems arise tomorrow.
  

• Timely reporting. Being able to get your KPI numbers together on a timely basis is critical as well. Sometimes organizations pick too many KPIs, or KPIs that take an unusual amount of time to calculate, and these choices limit their usefulness. Make sure you have a system in place that allows you to track the KPIs on a real-time basis, or at least calculate them easily on a periodic basis. If it takes you weeks to figure out what a specific KPI is, then the data starts to lose its usefulness.

Proper KPI selection and timely reporting is key to a company being able to continue to be successful and grow over time. Without KPIs, a company can easily fall victim to whatever the market holds without being able to properly prepare or react in time.

Choose your KPIs carefully. It can sometimes seem like a chore to track them, but well-picked and well-tracked KPIs pay off greatly in terms of being able to make better decisions for both the short-term and the long-term.

As always, I wish you the best in your business.

Mark Goldman