Thrive Business & Professional Magazine Summer Issue - Page 22

Six Key Performance Indicators for Managing Your Business Ray Peter, Area Manager, Florida SBDC Palm Coast (Business Assistance Center) M ost business owners are good at knowing all about the So let’s take a look at some of the more common KPI’s: product or service their business has to offer, but often they fall short in knowing the details of the financial aspects of their business. They may have a general idea that their business is performing well and they may be right, but without the right performance measurements in place there is no way they can plan and manage their business properly. There is no substitute for having a set of concrete key performance indicators (KPIs) that every business owner should have to measure the business’ financial health. KPIs are a term used to define the types of metrics that businesses use to measure their performance in different areas from marketing and sales to customer satisfaction to financial performance. Keeping a close watch on all aspects of your business, especially your financial performance is essential to both your short-term and long-term success. 1. Cash Flow Forecast Cash flow forecasts let businesses assess whether their sales and margins are appropriate, and are consequently one of the most important KPIs for small businesses to track. To make your cash flow forecast, add the total cash your business has in savings to the projected cash value for the next four weeks, then subtract the expenses cash out for the next four weeks. Smart business owners perform regular cash flow forecasts so they can identify problems in the early stages and make any necessary adjustments. This also helps businesses anticipate upcoming surpluses or shortages. 2. Gross Profit Margin Gross Profit Margin (also known as Gross Margin) provides an assessment of a company’s financial health, specifically whether Of course, your first objective is to have a strategic plan which you are pricing your goods or services appropriately. you can measure against. What is your projected sales revenue, your target market, your pipeline closing ratio, your projected Gross profit margin = (revenue – cost of goods sold)/revenue growth and your net profit goal? Each business can have different KPIs depending on the nature of the business but the Your gross profit margin should be large enough to important thing is that you are measuring the essential aspects cover your fixed expenses and leave you with a profit at of YOUR business to answer the question: Is my business the end of the day meeting its goals and am I tracking to my year end objectives? Remember the age old saying: 3. Net Profit That which is measured, gets accomplished! This is where the rubber hits the road. Your net profit is your 2017 | | Flagler Flagler County County Chamber Chamber of of Commerce Commerce and and its its licensors. licensors. 20 © © 2017 20 bottom line — the amount of cash left over after you’ve paid all the bills. You can figure out your net profit using simple subtraction: Net profit = total revenue – total expenses