Thanks to many of our Colorado Springs tax and small business accounting clients, we’ve already been quite busy, come 2013. I’m not sure how much of it is because of the fiscal cliff deal, and how much of it the recent notes we’ve posted here on business mistakes … along with other items. But our phone has been staying warm. (And here’s the number again: (719) 548-4924, in case you need it!)
Regardless, for you — as a Colorado Springs business owner or executive, it’s important that you start this year with a CLEAR understanding for where your business stands. Yes, we’re one week in, but it’s not too late to create a measurement system for 2013 that makes your decision-making simple.
Here’s what I mean…
Colorado Springs Small Business Accountant Discusses A Measurement Resolution
Peter Drucker once said “what gets measured gets managed,” and it continues to remain true — regardless of advances in technology, and the multiplicity of tools we now have.
You see, accurate measurements provide feedback and it’s (only) with this information that you can make informed calls.
Think about your own personal goals (assuming you have them!). Perhaps last year you wanted to lose 20 pounds — so what would you do? One option would have been to get on the scales in the beginning of January 2012, and then simply compare your weight now, a year later, to your weight then. I doubt you’d have had much success.
Instead you’d take regular measurements of your weight between the start and end date and make informed adjustments to your diet and exercise regimen according to what the measurements told you. You’d manage the process.
You see where I’m going here: It’s exactly the same for your business. If you measure your key metrics you can manage their performance. Each and every business has key performance metrics (KPI’s), some of which are common to other businesses, some are industry-specific, and some companies create their own KPI’s.
Now I might add here that, given my particular area of specialty, tracking a few of the specific items below didn’t necessarily come as naturally to me as perhaps some of the others. I’ve had to work together with my team to get these things into place. But once I did, my business decisions were much better.
Financial metrics are often common to all businesses. Some examples include:
* Average transaction value.
* Gross profit margin.
* A measurement of a company’s efficiency during the production process.
* How much is left over after COGS.
* Gross Profit divided by Total Revenue.
* Net profit percentage.
* The amount of profit for every $1 of revenue generated.
* Net Profit divided by Total Revenue multiplied by 100.
* Debtor days or receivable turn days.
* How long your customers take to pay you. (The sooner your customers pay, the sooner you can get that cash working for you.)
* 365 (days in the year) divided by (Sales on credit or invoice divided by Average Accounts Receivable).
More industry-specific KPI’s might include:
* Table turns per night.
The number of times a restaurant is able to sit customers at a table.
The number of hours a machine in the production line can run.
* Rejection rate.
The number of defects rejected in an assembly line.
Non-specific KPIs might include:
* Customers won/lost.
* Customer complaints/product returns.
* Staff sick days.
You must absolutely integrate the RIGHT measurements to provide proper feedback on your business’ performance.
We will either personally help you with the many of the metrics listed above, or for any which fall outside our areas of expertise, will put you in touch with someone else competent to help you identify them. Call: (719) 548-4924 or send me an email.