Small business owners can be so buried in the day-to-day that they lose sight of where their business stands. That’s where tracking KPIs comes in.
Key Performance Indicators (KPIs) can keep you on track and let you know whether your efforts are paying off. KPIs will also help you determine if you’re spending too much time on something that’s not worth it and prioritize your tasks accordingly.
A 2016 survey by Geckoboard found that nearly half of small and medium-sized business owners have failed to identify any Key Performance Indicators (KPIs).
A 2016 found that nearly half of small and medium-sized business owners have failed to identify any Key Performance Indicators (KPIs).
The same survey found that business owners who tracked KPIs were about twice as likely to hit their targets. If you’re not monitoring KPIs, you’re losing out!
Here are five financial Key Performance Indicators you should be tracking:
1. Profit & Loss (P&L)
Profit and loss reports are a simple and effective barometer of success. They give you a record of your business income and expenditures over a specific period and either show a profit (income exceeding expenses) or a loss (where expenses exceed income).
Analyzing your P&L monthly, quarterly and annually can do several things for your business:
- Since cash is usually tight for every small business, monitoring where your cash is going for expenses is essential.
- Clear P&L reporting helps you identify those months when you tend to have less work and make less money; you can use it to develop cost-cutting strategies.
- Your P&L report is a good indicator of how your business is growing over time.
2. Outstanding Revenue ($)
Are you doing a good job of billing and collecting? This has a huge impact on cash flow and the ability to pay your bills.
If you’re not keeping proper records, months could go by before you realize you have outstanding invoices.
Follow up on your receivables and apply payments to your invoices on a monthly basis. You don’t want to end up with a lot of customer deposits in your revenue account and a receivables report that doesn’t make any sense.
Not to mention, at tax time you could face wasted hours updating your receivables listing, overpaying on your taxes and bad debts.
3. Income by Customer (% and $)
When you start out, you’re likely to be grateful for customers of any kind. But successful businesses are generally those that identify their most valuable customers, nurture relationships with them and work to bring in new customers with a similar profile.
By tracking income by customer, you can easily see those who are most important to your bottom line, and work to make those relationships more profitable.
This will help you make decisions about which clients you want to focus on more and keep happy long-term. Plus, it makes scheduling your “thank you lunches” much easier.
4. Sales Tax ($)
Keeping tabs on the sales tax you’re collecting from customers and paying to the government is a necessary part of managing your business.
The worst thing you can do is collect tax and combine it with income.
The frequency of sales tax payments depends on the volume of your sales. In most states, you’re required to pay monthly if you have a high sales volume, or at least quarterly in almost every state.
If you’re not on top of this with your accounting, you could easily end up with fines and penalties for late payments and one big mess at tax time.
Some states give a discount for prepayment of sales tax, so that’s worth looking into. Routine sales tax reporting will save on resources, and help you become much more effective at tax planning.
5. Revenue by Service
Many small service-based businesses provide a range of offerings. You may run a small agency that does everything from video campaigns to content strategies.
But where does most of your actual revenue come from? Understanding this will help inform how you market, grow and staff your business. If most of your customers are paying big bucks for video, it might be worth investing in that drone.
But if you’re mostly seeing people needing a content strategy, it might be time to invest in that area of your business.
Ideally, you want to devote more time to the activities that make the most money and grow those particular services.
Non-financial Key Performance Indicators (KPIs) Matter Too
Strategic, non-financial metrics also impact your business and provide valuable insight. These KPIs should be right at your fingertips to chart your growth and forecast weak spots. Here are three examples of non-financial Key Performance Indicators (KPIs) to monitor:
1. Customer Satisfaction
Happy customers buy more and unhappy customers go somewhere else. Customer retention is key, because it’s always easier to get more business from a satisfied customer than to hunt for new ones.
How do you know if they’re happy? Just ask. A good customer satisfaction survey will give you a clear picture.
Questions should be simple and to the point, designed to give you valuable information about the “why” behind their satisfaction, so you can tailor your business even better.
It’s critical to set your own target and track it over time. Set a baseline and then think about how you can add value to improve their satisfaction moving forward.
2. Website Traffic
Monitoring the traffic to your website is just as important as generating traffic.
Web analytics tell you who is visiting your website, where they are coming from and where they are going within your site. This is especially important if your website is an important sales tool.
Numbers of visitors, pages visited, time spent, etc. are important because they can establish a baseline so you can track growth over time and identify areas of your website that aren’t performing.
You can better understand the habits of your users, and target your efforts in the most productive way—do more of what works and cut out things that don’t.
3. Social Engagement
Social media can take considerable time and effort. If you’re devoting time, you want to understand if it’s worth it.
Tracking things like engagement and amplification across channels will help you know which ones are working for you. Remember: Social engagement is a two-way conversation. If no one’s interacting with you and the content you promote, consider focusing on those channels that are working better.
Going deep on one or two channels is far more effective than spreading yourself thin across everything.
There’s a lot to manage as an entrepreneur, but looking at things with the right context is key. Keeping your fingers on your Key Performance Indicators is really like a pulse check for your business. You will know whether you are managing your company to its full potential or need some speedy course-correction.
The Right Accounting Software Makes it Easy to Track Financial KPIs
FreshBooks Select makes tracking many of these KPIs a cinch. Using FreshBooks to capture expenses, send invoices and log payments means you’ll always have an at-a-glance understanding of where your business stands.
No need to build out complex Excel reports or dashboards! Our reports build themselves based on your activities. So if you’re craving control over your KPIs, consider a tool that makes it easy. Click here to learn more about FreshBooks Select.
about the author
Karen Hawthorne worked for six years as a digital editor for the , contributing articles on business, food, culture and travel for affiliated newspapers across Canada. She now writes from her home office in Toronto as a freelancer, and takes breaks to bounce with her son on the backyard trampoline. Connect with her on .