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Measure performance of SMEs

For every business, no matter if big or small, it is important to permanently keep an eye on the financial performance. For this, the commonly applied markers are called Key Performance Indicators (KPIs). Those KPIs are tools that help you, as a Business Owner or Manager, to objectively assess, if your targets have been achieved (lagging indicators) or measures to improve your future strategic goals have been implemented (leading indicators). Also, KPIs make it possible for you to attentively focus on operational and strategic improvement as well as are a solid foundation for a better decision-making.

 

Understanding your business makes you understand which KPIs are relevant for you

As not every business is the same, there is no ultimate way to set up a KPI system. Therefore, it is important for you to first start out and determine and fully understand the company objectives and the strategy how to reach them. Based on this, choose measurable and meaningful KPIs that relate directly to your business goals. Looking for instance at a Software Development company that is offering Software as a Service (SAAS), it is relevant to know about the ‘acquisition costs per client’. In contrast, a manufacturing company will more likely be interested in keeping the costs per product below predefined thresholds. In this respect an important KPI would be the ‘Percentage reduction in defect rates’.

 

Determine, measure & evaluate KPIs

Once you have chosen relevant and specific strategic and operational KPIs and attach a time frame to reach them, it is important to track and measure the progress on a continuous basis. Only if an ongoing evaluation takes place, it will be possible for you to fully understand and assess your business performance. If needed, adjust your targets and re-evaluate the progress.

 

Quickbooks Online Performance Report

As time is money and small and medium sized business owners might be caught in their daily operations, Quickbooks Online offers a Performance Report for SMEs, highlighting the most relevant indicators for financial health. This report includes:

1) Gross Profit Margin

Gross profit margin = (revenue – costs of goods sold) / revenue

2) Net Profit

Net profit = total revenue – total expenses

3) Net Profit Margin

Net Profit Margin = (total revenue – total expenses) / total revenue

4) Aging Account Receivable

5) Current Ratio

Current ratio = current assets / current liabilities

6) Quick Ratio

 Quick ratio = (current assets – inventories) / current liabilities

 

The above KPIs will help build a better understanding of the company performance and learn how they are impacted by taking actions.

 

To dive deeper in the world of KPIs, please reach out to us or visit following websites:

https://quickbooks.intuit.com/r/financial-management/5-financial-kpis-gauge-business-health/

https://kpi.org/

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