If you have a gut instinct that your business is running smoothly with no serious setbacks, you’re probably right. But, if you have reason to believe your business’ financial goals aren’t being met to the standard they should be, it’s probably time to start checking up on your business’ performance a little closer.
Key performance indicators (KPIs) are one of the best ways to measure and keep track of how your business is doing and can provide a variety of benefits for both financial decision-making and strategic planning. But, if you’ve never even heard of KPIs before let alone used them, establishing which specific KPIs to measure can be a daunting task. So to help you out, we’ve compiled some of the most effective KPIs that can be applied to a variety of different businesses, guaranteed to give you a better insight into your financial circumstances.
Income and expenses
Perhaps the most important financial KPI of all is your business’ income and expenses. By measuring this, you’ll have accurate figures of how much money your business is earning and how much is being spent. When measured over a long period of time, this KPI will help identify if your business’ profit is consistent from month to month.
Keeping track of expenses is essential for all businesses, especially small ones, but this can’t be done to its best potential if you don’t track income too. By staying on top of both your income and expenses, you’ll have a true representation of the financial situation you’re dealing with.
Gross profit and net profit
It’s extremely common to get gross profit and net profit mixed up but, when keeping proper track of your business’ finances, it’s essential you know which is which.
Your gross profit margin represents profit before expenses and will help establish if the cost of your product/service is appropriate. This figure is often used to determine whether or not you may need a loan to cover your outgoings until you sort out a better pricing strategy – learn more about the loan options available.
The net profit margin represents the money left over after all your necessary business expenses and bills have been paid.
Return on equity
An essential KPI to measure if you have shareholders, return on equity calculates the amount of revenue generated per unit of shareholder equity. This KPI provides detail into the efficiency and overall probability of your business and will give shareholders a better idea of how their investment is being used.
Keeping track of your business’ financial health is essential for every business out there, regardless of the service or products you provide. And, as financial assessment is so important, it’s vital to have the best methods of measurement possible! By including the above KPIs into the overall tracking of your company’s finances, you’ll instantly be giving yourself a better insight into your business’ financial situation – essential if you want your business to grow and progress!