North Texas Dentistry Volume 6 Issue 5 North Texas Dentistry Volume 6 Issue 5 | Page 26

money matters

8 Myths About
Developing KPIs
Navigating uncertain terrain in business can be a daunting task,
particularly if you don’t have the proper tools to help. Just like a
pilot needs instruments to keep them on course, so we also need
the proper tools to keep us on course in business.

Enter the KPI, or Key Performance Indicator – one small
acronym that encompasses a critical part of managing the performance of your business. On the most basic level, a KPI serves to help
you understand why your business is performing a certain way. The
KPI does this by showing correlations that reveal growth and efficiency. With robust KPIs in place to help you understand the why,
you’ll be able to affect change by continuing what works well or
altering the course when something is not working.

As business advisors, we have come across a variety of misconceptions regarding KPIs. The effect of these misunderstandings is that
business owners can fall short in affecting real change in their company. Have you heard or believed any of these myths?

Myth #1: It’s not necessary to develop a system for
gathering and tracking KPIs.

Junk in = Junk out. Let’s face it, there are all kinds of reports you
could compile about any aspect of your business that wouldn’t tell
you anything significant. To have meaningful KPIs, you need to
find the path of least resistance to gather information that is accurate and consistent every time. It’s worth the time investment to
set up your system or process correctly so that you’re accurately
gathering the data you need.

Speaking of your system or process – it needs to be efficient to truly
help you attain and produce a timely KPI report. If the data gathering process isn’t efficient, you probably won’t make the commitment to review, analyze, and take action on the information. Take
the time to discover the path of least resistance to gather and track
this data so that you can get the information you need.

Myth #2: It’s not important to block out time
to review KPIs. 

As a business owner, you may face a seemingly endless onslaught
of tasks, decisions, and fires on a daily basis. You may even be a
primary producer in your business which makes your time management all the more critical for success. The growth-oriented
philosophy articulated in E-Myth encourages business owners to
work on your business, not in your business. While this may look

26 NORTH TEXAS DENTISTRY | www.northtexasdentistry.com

By Ryan Clower, CPA

like only a difference in wording, the concept is absolutely critical
for growth. As the primary leader, you must find a way to pull yourself out of the operational picture in order to consider the organizational picture. To stay on the operational plane is essentially to
take the ostrich approach of burying your head in the sand. Like
my dad taught me many years ago, if you put your head in the sand,
you get a boot... well, you get the picture. For further insight, I
would recommend E-Myth by Michael Gerber, or any of his additional industry-specific pieces.

Once you do make the decision to carve out time to work on your
business, respect this time to focus on the business. Make sure
you’re intentional and remove distractions so that you can truly
understand what the KPIs are telling you.

Myth #3: My business doesn’t have or need KPIs.

Every business in every industry has KPIs. In other words, every
business in every industry has something that drives it. The mindset I train each of our analysts to have is that each dollar of revenue
comes from somewhere. Every dollar was billed and, most of the
time, paid. But, what was it specifically that was billed and how did
it get to a place where the business could bill it? These questions
drive at the heart of what makes up a KPI.

Myth #4: KPIs are purely revenue indicators.

KPIs apply to both revenue and expenses; you’ll hear most
CPAs or CFAs refer to these as financial ratios. If you produce a
product or provide a service, you have to develop the capacity to
sell that product or service. With KPIs, we look at the expenses
associated with that development, both financial (costs) and
operational (utilization).

Myth #5: I should be able to understand
KPI data immediately.

It takes time to see and understand correlations without relying on
experts who have been there before. You want to avoid falling into
data overload, so I would advise against pulling all of the KPIs and
digging in without having a strategy first.

I would recommend that you start at the top and approach the
information with a “double click” mentality – start with the simplest information, then drill down for specifics. On the financial
side, start with the highest level data for revenue generation (price
and volume). Once you’re comfortable with that data, take a look