Don't Miss This Key Step In Assessing How Strong Your Business Is Performing Using key metrics or key indicators in your company will improve your decision-making process.
By kirsha campbell Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
I sat in the dentist chair, anxiously waiting to hear what my hygienist would report after examination of my mouth and teeth.
I reflected on past months how my oral hygiene had been carried out. I made sure I brushed regularly plus flossed.
Would that be enough to give me a clean slate from the hygienist though?
Have you ever wondered why when your visit the dentist they are able to detect developments in your mouth that surprise you?
Have you ever said how come I didn't see that?
Related: 10 keys to a successful company
A simple reason is that the dentist and their team have tools that we don't use daily. They have certain measurements as well as assessments that they use to look beyond the surface of our teeth, they look deep to see what is really happening beyond the surface.
How can that apply to your business?
Often in your business as the CEO/business owner, you may look at your sales, or your bank account balance or even the number of projects you have in the pipeline to assess how your business is performing.
The danger with that is those variables do not dive deep enough into how your business is performing.
What makes the difference in assessing your business? Using Key Metrics/Indicators!!
Key Metrics /Key Indicators affect all areas of your company/business – finances, back- operations, team/labour and so on.
You made five or six figures in sales, great; are those monies collected? Were those sales profitable? How efficient is your team?
Using key metrics or key indicators in your company will improve your decision-making process and also help you as the CEO/entrepreneur or business owner to change quickly what is not working and do more of what is working.
What are some Key Metrics/Indicators that you can start using in your business?
The following are key metrics/indicators which will apply to most businesses:
Days cash on hand
You don't have a bank overdraft. That is great, however do you have enough cash on hand compared to your sales. If you have 5,000 in the bank after making sales of 30,000, that is a different scenario versus having 5,000 after making sales of 650,000. This ratio determines how healthy your cash on hand is in your business.
Inventory turnover
How quickly are you selling your products? Do you have too many items in stock for resale? How is customer demand impacting your sales? This ratio assesses sales and how you are re-stocking items for resale.
Days sales outstanding
Are your clients taking too long to pay you in full? Are you on top of collections and those who owe you? The lower this ratio, the better !! Your company has more funds to use in the company to grow and invest as needed.
Budget variance
Why are your results not in sync with the budget? Why are your costs higher than the budgeted amounts? Why are your sales higher or lower than planned? Knowing the reason for variances from the budget will help to improve performance in your company and quickly change the direction of your business when needed.
Profit margin
You've made sales. However, were they profitable? How much did it cost you to make those sales.? This ratio is a one that allows you to compare the performance of your business to the industry as well as your competitors. Profit can lead to cash flow so it is important that you monitor this ratio at least monthly.
I listened intently as I received a clean report about the state of my mouth and teeth. I was relieved for sure.
It also confirmed once again the importance of having those eyes or tools that look beyond the surface in your mouth and your teeth.
Related: Why Every Entrepreneur Needs a Board of Advisors
Again it is very vital to use Key Metrics/Key Indicators In your business to be able to quickly change your business strategy as needed or even be positioned to grasp opportunities timely when are arise.
Of course, visit your dentist regularly!
Connect with Kirsha Campbell, CPA, CMA
When business owners find their businesses in financial chaos, they reach out to Kirsha. She integrates all the moving parts in your business to set up the right foundation to be recession-proof, operate with reduced risk, increase cashflow, set up effective systems and procedures and more
