4 Key Performance Indicators to Measure Your Success
To ensure that your business is alive and thriving, keep track of these key performance indicators as tell-tale signs that your business is healthy.
Key performance indicators, or KPIs, are vital in communicating with entrepreneurs the status of business success. KPIs allow business owners to be analytical of their company’s progress, proactive in making any changes in business performance, and adept at planning to avoid serious losses. By consistently keeping in touch with KPIs, business owners set themselves up for success and allow the business to have room to maneuver any potential hiccups or setbacks.
KPIs might seem like new terminology, but most small business owners monitor them daily. When you mind business revenue, expenses, and profits, you’re already thinking about KPIs, and we are here to give you a more in-depth idea of numbers to keep track of to make your most successful business. Start monitoring these four KPIs to better gauge your business’ success:
Company Capital
It is abundantly clear that small business owners must keep their mind on their money. This means both monitoring cash flow and working capital. Cash flow is the funds a business earns as customers pay for the goods and services provided versus funds going out to pay business expenses. Basically, cash flow determines whether daily operations can be carried out smoothly. Working capital, on the other hand, is the money that is considered immediately available, which includes cash on hand, accounts payable, short-term investments, accounts receivable, loans, and accrued expenses. It is imperative to have easy access to the knowledge of these numbers at all times.
Debt to Equity Ratio
Debt to equity ratio is calculated by taking into account business liabilities against the company’s net worth, or shareholders’ equity. This ratio is important to shareholders because it shows them how well your business is using their investment and fostering growth, which are overall indicators of profitability. Not only does it show investors how much as been invested in the business, but also how much the business owes. This KPI will help keep your company accountable.
Use this basic formula to keep track of your Debt Equity Ratio
Business Expenses and Revenue vs. Business Budget and Target
Minding business financial goals and outcomes is vital to monitoring business success. By taking into account what the company hoped to accrue and how much it actually took in, business owners analyze which departments or projects performed well and how to remedy any downfalls. Through observing budgets that were set and whether they were successfully heeded, business owners can better plan money to set aside going forward. Both of these KPIs go hand in hand for planning business success and reacting to the boundaries and flow of finances through a company.
Turnover of Accounts Payable and Receivable
These two KPIs demonstrate how quickly your business pays its debts as well as collects payments for services rendered. Monitoring these factors allow business owners to determine whether their company is establishing good relationships with vendors by paying off bills and maintaining firm management that is able to collect what is owed to the business. Keeping these two KPIs in check ensures that the business stays afloat.
Looking deeper into more specific KPIs gives business owners the opportunity to scrutinize their company a bit closer. To keep the heart of the business pumping, it is important to monitor all of the moving parts that make up a thriving, functional small business. All of these measurable KPIs can also be found within your Xero dashboard. Need help finding them? Contact your account manager, they are an expert and would love to help you.
With these four factors in mind, your business is well on its way to proactively work toward success.