Whether you’re the owner of a small business or head of a larger, more established company, it’s safe to say that your weekly schedule is overflowing with meetings, tasks, and to-do lists that need your attention to keep things moving in the right direction. With so much happening on a day-to-day basis, it might seem daunting to sit down and face endless streams of numbers, facts, and figures – but it’s an absolutely crucial part of seeing how far you’ve come, and how best to move forward and plan for the months and years to come.
Here’s a look at 3 of the most important key performance indicators you should know about when it comes to running a business:
1) Sales
Any business owner knows that sales are the very lifeblood of a company, and should therefore be tracked and reviewed meticulously. Make it a point to review your sales at least once a month, keeping a close eye on the main drivers behind those sales; check conversions, site visits, and email list growth, and make use of spreadsheets to organise all of that information.
Top Tip: Categorise sales into the various products and/or services offered and periodically analyse what’s performing well, and where improvements and adjustments can be made.
2) Profit
Sales and profits go hand in hand; the analysis of profit inevitably leads to the analysis of cost of sales and administrative expenses. One effective way of monitoring your profits is to follow your margins, namely gross profit and net profit margins, then compare them to your expectations, targets, comparatives, and industry averages. While many owners do pay themselves a salary, which is included in company expenses, others may choose to take a draw or ‘distribution’ from the business instead.
Top Tip: Consider the tax implications and potential benefit of taking a director’s fee or salary, as opposed to dividends.
3) Cashflow
If you’ve ever found yourself scratching your head, wondering where all the money’s gone, then consider taking some time to think about cashflow and how it ties into your business. Break things down by asking:
- How much money did we have at the start of this period?
- How much money did we have at the end of this period?
- Where did the difference go?
Generally speaking, cashflow changes are caused by tax payments, profits, investment, and working capital changes, but you may find that a portion of your cashflow has been misallocated.
Top Tip: Ask your accountant or financial advisor to help you identify potential cash flow pitfalls and suggest a corrective course of action.
