No discussion about accounting and financial reporting would be complete without mentioning KPIs (Key Performance Indicators). As a business evolves, it depends on data generated in financial reports. This data allows management to look at historical performance and plan for future growth. Before we jump into reviewing KPIs, let’s take a look at some performance indicators and their role in your business.
Are All KPIs Created Equally?
Different departments within your business may look at various KPIs and select and analyze them
differently from other departments. For example, your Sales Department may look at Profit Margins,
New Customers, and Unit Sales, to name a few KPIs.
Your IT or Ecommerce divisions may keep an eye on Clicks per Page, Web Processing Speeds, and
Marketing may be more interested in Web Page Reviews, Costs per Lead, and Ad Conversion Rates. They
may use this data to develop effective marketing strategies while evaluating those they have in place.
Customer Service and Support may be turning their attention to Call Times, Hold Times, and Survey
Results to help them understand where gaps in customer satisfaction might lie.
The Accounting Team may want to know about KPIs that include Revenue, Growth, Income, Working
Capital, and Profitability… to name a few.
Accounting KPIs… Getting the Information You Need to Manage Your
Some of the main KPIs you will want to understand and may need to get from your accounting team
include the following:
Revenue – This KPI represents the total amount of income generated from the sale of services or goods.
It’s often called the “top line” because it is the first entry at the top of the income statement. Revenue
tells us how effective the company has been in generating sales and does not take into account any
expenses related to calculating net income.
Growth – In this context, the growth KPI refers to Sales Growth. This crucial financial metric shows the
increase in sales over a specific period and in general. It typically takes the current sales period and
compares it to previous ones, noting growth or a decline in sales number.
Income – Income is total earnings or profit for the company. When we talk about income in the KPI
sense, we are generally referring to net income. Net Income is what’s left of revenue after the expenses
incurred during the course of doing business. Remember that revenue is called the “top line.” Income is
your “bottom line.”
Working Capital – This KPI measures your business’s available assets that are needed to meet your
short-term financial obligations. It will include a group of assets that includes cash, accounts receivable,
and short-term investments. These will indicate the liquidity of your company—the ability to quickly
generate cash when needed.
Profitability – One of the most essential KPIs; analyzing your profitability helps you understand how
successful your company is at attaining high returns. Don’t forget to look at both net and gross profit
margins to get a complete picture of your financial KPIs.
Benefits of KPIs
The beauty of KPIs is that they can help you track trends in your business over time. They will allow you
to analyze aspects of your business that you can control, and they will show you where adjustments
need to be made. Building your goals and developing strategies based on KPIs makes good business
At Health and Taxes, we help our clients to learn to use KPIs in goal setting and strategy building for
their businesses. Contact us today if you would like us to go over your financial reports with you!