By: Ean Murphy
As we begin the new year and review the past year, you should be using your financial data to gather intelligence and to set some goals.
You hear a lot about “KPI”s (key performance indicators), but not many business owners know what their KPIs are or how to figure them out.
My approach to KPIs is this: what are the things that if they don’t go well will have the largest impact on my business?
Sometimes it is a general sales goal, but making more sales doesn’t always mean making more money. KPIs should measure the quality of your success, not just the quantity.
Profitability and cash flow are the biggest factors for most businesses. Are you pricing your goods/services high enough? Is there a long lag between when you buy and when you sell (or when you sell and when you get paid)? What are the things to keep your eye on that let you know that you are doing OK?
There are also non-financial KPIs, like customer satisfaction, employee retention, time off for the owner, etc.
Start with what you want for yourself, and then work out how to make that happen. If you want to take home $75k, for instance, your net profit should probably be closer to $100k (so you can cover taxes). How much would you have to sell to make that? Remember to deduct not only direct costs but your overhead as well. Is it reasonable for you to make that many sales? If not, what is the plan – hire help, improve marketing, streamline workflow to save time?
Make sure you are only giving yourself one to three goals in any given business area (I set goals for the overall business, for my staff and for my customers). Any more than that can feel overwhelming or be too much to track for maximum benefit.
Don’t forget to make all goals “SMART”: specific, measurable, achievable, relevant & time dependent. How will I know if I achieved my goal? When do I want to achieve it by?
If you need help figuring out where you should be setting goals, or what the goals should be, contact us, HERE!