Your business is running well enough, and you’re able to stay on top of daily operations. That’s a good start, but that’s all it is—a start. When you take a step back and start really looking at the big picture, you’ll see there’s more to do in order for your business to flourish, including getting a grip on your business financial reports and KPIs.
What’s a KPI (and why does it matter?)
KPI stands for Key Performance Indicator, which demonstrates the effectiveness of a company in achieving key business goals. It’s a measurable value, so it’s used in a number of ways: low-level KPIs are more on processes, while high-level KPIs are for overall business performance.
Here’s the thing: actually defining which performance indicators are key can be tricky, so much so that KPIs are confused with business metrics pretty often, even if they’re two different things. Each and every single KPI has to be tied to a specific business outcome that has a performance measure. They’re a great help in tracking the “here and now.” They’re particularly handy when applied to online bookkeeping.
Start to establish your KPIs by asking the right questions
Since these need to be defined through your business’ critical objectives, figuring out exactly what your key performance indicators are in the first place involves asking the right questions to narrow everything down.
Some questions you can ask include:
- What is the outcome you want to achieve?
- What makes it important?
- How can progress on achieving this be measured?
- How can you move towards the outcome?
- Who is ultimately responsible for the aforementioned outcome?
- When will you achieve the outcome, and how will you know you have?
- When tracking, how often will you check on how far along you are?
For businesses, a standard objective is to increase the revenue of sales. Once you know that, you can move forward.
Write a clear objective and use SMART criteria
Nothing is more important when it comes to developing KPIs than realizing what the ultimate goal is, in the most detailed manner possible. Otherwise, you’re just doing something that will ultimately not make a difference and wasting precious company resources while you’re at it.
The acronym SMART stands for Specific, Measurable, Attainable, Relevant, Time-Bound.
So, with that in mind, consider the following:
- Is the objective specific enough?
- Is progress towards that goal measurable?
- Realistically, is the objective attainable?
- How relevant is the objective to your business?
- What is the time-frame for achieving this goal?
Make sure that the KPIs are actually achievable
Once you have the groundwork or outline in place, it won’t hurt to double-check and ensure that you’ll actually manage to achieve them. If the target is too high, it could wear you out; even if you have a team, morale and motivation could drop. On the other hand, a target that’s too low will cause misappropriated time and funds.
Coming up with KPIs for your business is quite a bit of work, but it will be worth it in the long run. Having a solid basis as to how your organization is doing will pay off especially when you’re looking to tighten ship and make sure things are running at the best possible mode on all ends. They are an essential tool to measure business success and see where adjustments should be made.
For personalized, high-quality accounting services in Boston, MA, reach out to A4E today! Whether you’re a solopreneur or a small business owner needing help with your accounting, finance or KPI needs, we’re here and ready.