Key Performance Indicators
Numbers should be a servant, not a master. Running a business without monthly financials is like playing golf without keeping score but even monthly financials are of little practical value if they aren’t telling you what you need to know about your business.Just as bad is using the numbers simply to comply with regulations – rather like driving a car by looking in the rear view mirror. More important than simply having monthly profit and loss numbers is building a financial dashboard of Key Performance Indicators (“KPIs”) that deliver key information to the CEO. | |
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| The most inportant starting point for most businesses to track each month is revenues, but what figure should businesses look at? The clear and logical answer is that you should track monthly billings and yet I have seen a number of businesses that track collections instead. | |
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The Gross margin is probably the most important in any business, and yet many people fail to measure it. Part of the reason for this is that the Gross margin is radically different for different businesses and in many cases it is not a well understood concept. | |
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One of the most important things to measure is cash flow. I like to use what I call “Quick Cash Flow” – an approach which links the Profit and Loss and the Balance Sheet in a very effective fashion. Click here to complete your own analysis. | |
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