If you’re not thinking about these questions, then how are you making decisions? If you don’t keep the important numbers front and center, then you’re probably spending time on activities that are low value add (i.e., aren’t moving the needle).
Important Numbers (KPI: Key Performance Indicators)
Depending on your business, you might have different numbers that are important. Do some research for your industry and find out what they are. Typically, you always start with the most common: receivables, gross income, net income, etc. From there, depending on your business, you can build ratio’s, percentages and averages around them.
Average Revenue Per User/Customer
% of Receivables over 30 days
Avg Net Income per Project/Product
% of Wages/Income
Marketing Cost/# New Customers per Month
The key is having high-level numbers (10 max), that you will use to take action and make decisions.
But Wait, Something’s Wrong…
It’s common, upon trying to pull these reports, to realize that you might not have the numbers; meaning you might not have been inputting the numbers properly to be able to pull these reports. Tisk, tisk. Fix that. Garbage in, garbage out. Typically, it’s your expenses. Ensure your chart of accounts is thorough and transactions are being properly allocated.
Projections & Forecasts
Once you get you KPIs defined and create visibility into your effectiveness, you’ll likely start thinking about budgets and forecast. That’s perfect; however, these depend on your business, growth and targets. Either way, with the new KPIs, you’ll be able to build them out and set strategy that will increase the probability of achieving them!
“you can’t manage what you don’t measure”
– Dr. Deming
What do you manage measure?