How Can You Calculate Your Small Business KPIs without Good Data?
As a small business owner, do you often make business decisions based on the direction of the prevailing wind? Do you decide to incur business expenditures based on a hunch or think about expanding because it just "feels right?" A surprising number of people in this situation do because they don't maintain a comprehensive set of accounts to keep them up-to-date. Why is it better to focus on bookkeeping and make these decisions with more conviction instead?
Making Shrewd Decisions
Big corporations often put a lot of emphasis on KPIs (key performance indicators). Certainly, it's a buzzword, but it is equally as important to a small business like yours as it is for people who inhabit big boardrooms.
Indicators of Success
KPIs vary from company to company, but they represent information that tells a decisionmaker how they are doing and gives an insight into the organisation's health. They are a mixture of data, including financial information, accounting ratios and reports and provide a snapshot of how the business is performing at a given moment.
Exploring Your KPIs
Some of the KPIs you might be interested in include your gross profit margin, which is the profit you make once you've taken the cost of producing your goods or services away from your revenue. It doesn't include overheads, which are effectively set no matter how much business you do. When you understand your gross profit margin, you can make certain alterations to bring in more money and make your organisation more efficient. You may also want to know how much you spend in terms of payroll as a percentage of your overall income. You can then compare your performance to others in your industry to see if you need to make any adjustments.
Relying on Good Data
It's relatively easy to calculate these KPIs, but only if you have high-quality and up-to-date information, to begin with. This means that you need a good bookkeeping system in place that is updated regularly. Only then will you be able to calculate your KPIs and keep a running check on the health of your business. You can't make sensible predictions based on old data that may no longer be valid due to changing business conditions.
Outsourcing for Efficiency
So, everything starts with a good bookkeeping system. But rather than take this on yourself and step out of your comfort zone, it's a good idea to outsource to a qualified professional instead. Reach out to local bookkeeping services to learn more.