Finding key performance indicators for a small business

What KPIs should you monitor from your accounting data?

Key performance indicators, or KPIs, can help you measure how your business is progressing towards your strategic goals. But if you have an overwhelming amount of data like most small businesses do, then it can be tricky to know which financial KPIs to set.

For many business owners, a monthly glance at the bank balances is the only accounting activity they engage in. It should come as a little surprise then that many business owners don’t have a full view of their financial landscape or how it is contributing to the business’s overall goals. This is where KPIs can help.

KPIs vary from industry to industry, business to business and are also largely shaped by your business model. For example, tracking like-for-like sales is important to an online store, while tenant retention is crucial to a commercial property management company.

From current ratio to inventory turnover, your options are vast when it comes to KPIs and they must be chosen wisely to ensure your company keeps growing. Gross profit margin, for instance, is often overlooked by small business owners, despite it being key to unlocking profitability. Debt ratio is another mystery to many entrepreneurs and often neglected as a financial KPI. The conventional wisdom is to keep debt ratio low, but there are cases when debt can help you grow and therefore should be taken into consideration at the right time.

Knowing which financial KPIs to choose is essential, and this is where Tax Agility can help. Our team of chartered accountants has many years of experience advising many small businesses across London, helping them set up appropriate and relevant financial KPIs that allow them to make better decisions. What makes us different is that we take time to understand your business. We’re here to take care of your daily financial management, but we also take pride in our financial advisory role as business growth consultants, where we actively help SMEs unlock their potential.

Know your financial KPI options

In general, KPIs should be relevant, balanced and shared, so that everyone in your company acknowledges their importance and works toward achieving them. Financial KPIs are derived from your accounting data, which makes them particularly useful for spotting short-term problems and long-term trends. There are no rules for which KPIs to use, but here are some that are worthwhile to monitor:

  • Net profit and net profit margin: What is your net profit margin in a certain time frame (often calculated over a quarter or a year)?
  • Gross profit margin: What margin (your revenue minus cost of sales) are you currently operating in? This can be calculated for individual items or your entire business.
  • Current ratio: Your current assets against your liabilities and helps show whether you can meet your short term obligations
  • Working capital: What cash is available to support your day-to-day operations and do you have enough?
  • Debtor days: What is the current average number of days it takes between you issuing an invoice and that invoice being fulfilled?
  • Inventory turnover: How much inventory are you turning over (selling) in a given time frame?
  • Debt ratio: What portion of your small business’s assets are currently financed by debt? This figure is indicated as a percentage.

Set actionable KPIs

  • Consider your industry, business size, and location
  • Work backwards from your business objectives – think about your goals
  • Analyse your current performance to see what’s achievable
  • Set short and long-term targets
  • Review progress and refine your KPIs

Working with Tax Agility

As your accountants, it’s our job to ensure you’re being kept up to date with the status of your Key Performance Indicators.

We believe sitting down face-to-face is crucial to understanding your business. We work closely with our clients on a personal level because knowing you is knowing what propels your business to success. When you win, we win.

Find out more how we can serve your business locally in:

Call today and book a free, no-obligation meeting on 020 8108 0090.