Bookkeeping: The Power of Key Performance Indicators

I am speaking to my local BNI Chapter tomorrow about Key Performance Indicators because running any business effectively, requires good decision making, which is based on good management information.

A good bookkeeping system enables businesses to monitor profitability and cash flow but let’s take a deeper look at what a good management information system can do for your business.

There are many internal and external factors that can influence the performance of a business and the sheer volume of information available to management can be a distraction.  For this reason, you need to focus on just a handful of key indicators.

Most key indicators are concentrated on the three key areas of sales, costs and working capital but some some indicators are used as a strategy to boost profitability and cash flow – these are the drivers of the business and they can be used to powerful effect.

Whilst I would suggest that at a minimum you need key performance indicators in place to monitor sales, costs and working capital, I briefly want to concentrate on the DRIVERS of your business.  Drivers are the 20% of activities that have an 80% impact on performance or cash flow – the major influencers of your business.

For example in my consulting business, if I employed a number of consultants it would be foolish just to monitor the sales line, but I would want to identify the contribution to sales of each consultant.  In this instance, the number of man-hours per consultant per week might be a key driver.

In another business which is dependant on referrals, the number of networking meetings attended might be a key driver for leads.  You might want to take this a step further to monitor the number of leads from each networking club to see which were the most effective referral generators.

My father-in-law is in a residential home. Staff morale is a major factor in the quality of care that residents receive.  This can be monitored indirectly through tracking voluntary overtime, absenteeism and sick days.  It is too late for the business to wait for an inspection before tackling problems related to morale!

The drivers will be different for each business, but it will pay you dividends to identify, with clarity, what they are and what you need to monitor to positively influence them.

Your management information needs to be presented in a format that makes it easy to see the trends and it is important to restrict the number of figures you monitor in order to make the exercise manageable.

So select the most urgent problems in your business, identify the causes (and you might need to dig to find the real reasons!) and take action by agreeing who will be responsible to do what.  Above all, don’t get distracted and take your eye off the ball.

If you want a comprehensive report on all the key performance indicators that you might use in your business, why not go to my ‘Using Bookkeeping Data‘ page where there is a free download?

If you would like me to help you with your web marketing then take a look at Web Marketing Machines.

Share on Facebook