• Matt Alessi

Why Your Small Business Must Identify and Track KPIs

Small and new business owners commonly rely on their bookkeeping records to make various business decisions. At a high-level, this may seem sufficient; however, it is difficult to see the full-picture by only looking at monthly activity, ending balances, and simple summary reports.


In order to make fully informed business decisions, it is imperative that business owners track and monitor Key Performance Indicators or “KPIs.”


Think of it like this: If you went to the gym but you didn’t remember how fast you ran or how much weight you lifted, how do you know if you are improving? How do you identify what you need to work on? If you are playing rounds of golf but you aren’t keeping score, how do you truly know if you are getting any better?


KPIs are the key metrics that track your business’ performance. If these metrics trend positively or negatively, your business’ performance will follow.


The KPIs that should be tracked will vary by business and industry. As such, a business owner can take the following 4 steps to identify which KPIs best illustrate their company’s story:


  1. Identify the key drivers of your business’ revenue

  2. Identify which direct and indirect costs are variable and fixed in nature

  3. Identify non-financial components (e.g.: employee turnover, customer satisfaction, etc.) that are important to you as a business owner

  4. Determine industry benchmarks or metrics to compare your performance to industry standards and competitors


Once your KPIs are selected, compile these components into one standard report that can be quickly reviewed and understood. KPIs are most effective when updated on a weekly or/and monthly basis.


KPIs can be as high-level or granular as you would like. The goal is to be able to quantify and consolidate the most important metrics of your business in one place. This will make it easier for owners and management teams to use this data when making important decisions.


In today’s business environment, leveraging data and technology to understand why your company is trending in one direction or the other is becoming common practice in every industry.


If your business needs guidance on compiling KPI metrics, building report templates, or integrating software systems, please contact us at info@cfoxadvisory.com.


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