In today’s ever-changing market, tracking and measuring business performance and goals is essential to remaining competitive. However, relying solely on your accounting software dashboard may not provide the comprehensive insights you need.
Measuring business performance is such an important aspect of monitoring growth and progress. Business owners can identify best practices and develop strategies to foster sustainable development by monitoring and measuring performance regularly. This requires a systematic approach.
Let’s explore the three essential steps to effectively measure the pulse of your business and pave the way for success.
Monitor goals and benchmarks.
Making smart decisions requires paying attention to specific details and data points. These elements pave the way forward.
Setting the right goals and consistently monitoring them is the name of the game. That’s how you’ll uncover what true success means for your business.
Some of the objectives you may want to focus on include:
- Increasing your sales: Exploring avenues to generate more revenue and expand your customer base.
- It boosts your profit margin: Identifying strategies to improve profits by reducing costs or increasing prices.
- Expanding your market share: Gaining a larger slice of your target market and outshining your competitors.
However, it’s not enough to establish goals and wish for them to happen. Accountability is one of the best things for both you and your business. This is where the expertise of outsourced CFO services can prove invaluable.
An outsourced CFO can assist you in tracking your goals by measuring performance against different key performance indicators (KPIs). They can also hold you accountable along the way!
These KPIs serve as metrics that gauge your progress toward specific objectives and are often expressed as ratios.
The world of KPIs offers many options since you can practically measure anything relevant to your business. Here are just a few examples of the metrics businesses typically monitor:
- Total sales: The overall revenue generated through your sales activities.
- Revenue growth rate: The rate at which your income increases over time.
- Customer retention rate: The percentage of customers who continue doing business with you over a specific timeframe.
- Cash on hand: The amount of available money your company has.
- Labor cost to revenue ratio: The proportion of labor costs relative to your total revenue.
- Customer acquisition cost: The expenses incurred to acquire new customers.
Evaluate the alignment between your goals and chosen KPIs. If you fall behind, consider adjusting to improve your results and strive for better outcomes.
Draw insights from key financial reports.
Small business owners should look at and draw valuable insights from their financial reports and statements.
These reports play a valuable role in measuring your business’s performance and assessing your KPIs. You can dive into your financial statements to uncover insights into trends, strengths, weaknesses, and opportunities.
Amidst the sea of documentation and data, there are a few standout reports. These reports are essential for evaluating performance.
Your trusted outsourced CFO would ideally compile these financial reports monthly, quarterly, and annually. However, if you are doing this without the help of an external CFO, here are the three reports to look into:
- Income statement – Also known as profit and loss, it lays out your financial performance over a specific accounting period. Your income statement will show your revenue, expenses, gains, and failures.
- Balance sheet – Consider your balance sheet the historical record of your company’s financial journey. It will show you your assets, liabilities, accounting transactions, net worth, business value, and debt.
- Cash flow statement – The cash flow statement helps to track money inflows and outflows.
Measure performance and realign goals as needed.
To constantly drive improvement and boost profits, you should regularly assess your business goals and make necessary adjustments as you need to.
While financial reports serve as a solid starting point, taking into account other key factors, like customer satisfaction, employee engagement, and market share, are just as important.
Here are some tips for effectively measuring performance over time:
Nail down your KPIs – These metrics will gauge your performance. Please ensure they’re specific, measurable, achievable, relevant, and time-bound (SMART goals).
Gather data on your KPIs consistently – Regular data collection allows you to track progress and pinpoint areas requiring improvement.
Analyze the data and identify trends – This analysis provides insights into your evolving performance.
Adapt your business goals as needed – If you’re falling short of your objectives, it’s time to tweak strategies or processes to get back on track.
You’ll ensure your business is set to reach your goals by consistently measuring performance and making necessary adaptations.
Accountability is key.
The journey to business success involves regular tracking of financial goals and benchmarks. By establishing the right objectives and consistently monitoring them, you can determine what true success means for your business.
There are big ideas hidden in your numbers. Ideas for profit improvements, efficient processes, and better financial performance. But it’s not enough to set goals and hope for the best. Through our Outsourced CFO Services, we work closely with you to develop deep insight into your business and financial performance, compare our findings with industry best practices, and uncover the big ideas to make your interactions more competitive.
To learn more about how we can help you discover areas of efficiency and profit improvements in your business, contact us today.