Tracking Your Way to Financial Success
Don’t we all have something we track as part of our financial management routine? We track our bank account for example. The practice of balancing the checking account each month when the bank statement arrives in the mail, or electronically, may not be as prevalent as it once was but we all know if we write a check if the funds are there to let it clear or not. My son made the mistake of not watching his bank balance closely as a new checking account owner and the bank overcharge penalty was a real bite into his limited capital at the time. He keeps enough funds on account to avoid the bank’s penalties and has for many years.
A small business generally has cash management to track as well as billings, accounts receivable, accounts payable, possibly inventory, and debt service. Larger business enterprises have all of these to track as well as other areas that can contribute to success or hurt the bottom line.
As the business owner(s) delegate various management oversight to employees of the company, there are tools to aid the owner(s) in effective management and goal setting. The use of Key Performance Indicators (KPI) has been around for many years. While some companies look to implement KPI’s into their management and goal setting plans when they are trying to “fix” something in the business, they are used by many successful companies as part of their management DNA mindset of success.
Implementing the use of KPI’s into your personal finances or a company is not any more difficult than reconciling your bank account. In fact, most KPI measurement is much easier than a bank reconciliation and less of a time commitment. Small improvements in a KPI can have exponential impact on the bottom line. There is real impact from the idea that measuring a KPI can result in an improved KPI.
As space is available in future newsletters we will cover some of the basic KPI’s to measure and why. The five ways KPI’s fail and why. KPI’s are custom to each business, but there are some standard operational and financial KPI”s for customer acquisition, delivery time, sales conversion, cash flow; profitability; and revenue. A business owner should not wait to “fix” an issue in the business. Adopting a mind set which incorporates KPI’s s into the goal setting and management of any business will help the success of that business.