Ten key financial performance indicators every start up business should track

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Date: 7 October 2020

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It's never too early to track the performance of your business. Your business' key performance indicators (KPIs) are the tools available to you to measure and monitor the performance and growth of your company. When used correctly, your KPIs provide you with insight into the health or otherwise of your business. This insight is necessary for making plans, preventing potential losses, and changing underperforming areas. This process is essential for establishing the long-term stability of your company while increasing your business' value. So, are you looking for the best ways to track your business' performance? Here are some of the KPIs that you should regularly monitor and analyse.

  1. Customer satisfaction

The success or otherwise of your business will depend a lot on how satisfied your customers are. Therefore, knowing how to quantify customer satisfaction is vital. You can do this by calculating the various positive responses and reviews to obtain your Net Promoter Score (NPS). You can also resort to your call centre dashboard to provide some essential information. There are also several online tools such as Whatagraph, available to help measure customers' reaction. Using these mediums will enable you to track progress while viewing and accessing your KPIs all from a single location.

  1. Operating cash flow

Tracking and analysing the operating cash flow of your company is essential if you're to be able to meet your regular operational expenses. As a key performance indicator, operating cash flow should be used in comparison with how much capital your business has in total. This analysis will reveal whether your various business operations are generating enough money to support the level of investments made in those operations. The analysis of the ratio of your total capital employed compared to the operating cash flow provides a better understanding of your business' financial strength. This enables you to look beyond merely making profits when making future capital investment decisions.

  1. Working capital

Your working capital represents the amount of cash that is readily available for your business to spend. One way to calculate your working capital is by subtracting your current business liabilities from your existing assets. The equation of your working capital's KPIs includes loans, accrued expenses, accounts payable, short-term investments, accounts receivable, as well as cash on hand. This essential key performance indicator will tell you the current condition of your business compared to the value of operating funds available. It makes it possible to know the extent to which the assets available to your company can cover all your short-term liabilities.

  1. The current ratio

While you need to subtract your liabilities from your assets to provide your working capital, your current ratio KPI requires a division of your total assets by the liabilities. Doing this will give you a better understanding of the level of solvency of your business. That's to say, you will know how well your company is prepared to meet all its future financial obligations consistently and on time. You will also be able to maintain the right level of rating needed to grow and expand your business operations.

  1. Debt to equity ratio

You can calculate your debt to equity ratio by looking at the total liabilities of your business in contrast to your net worth or shareholders' equity. This key performance indicator will show you how well you are making use of your shareholders' investment (if any) and how well your company is funding its growth and operations. The result of your debt to equity ratio should show you exactly how profitable your business is at any stage. It should also inform you and any shareholder you may have, how much debt your company has accrued while trying to make profits. This KPI is critical, as it helps you to focus on the financial accountability of your business. For example, if your debt to equity ratio is very high, it means that your company may be piling up a lot of debt to pay for business growth.

  1. Accounts payable turnover

The accounts payable turnover key performance indicator shows the rate at which your company pays off its suppliers. You can calculate this by dividing the costs your business incurs from supplying its goods and services by your average accounts payable during that period. You will find this ratio very informative when you compare the results over multiple periods. If your accounts payable turnover KPI is declining, it shows that your business may be taking a lot of time to pay off its suppliers. This situation should call a swift action or solution, as it may put your company in bad standing with your vendors. It will also make it very difficult to take advantage of significant time-driven discounts from your vendors.

  1. Accounts receivable turnover

The accounts receivable turnover key performance indicator illustrates the rate at which the company is successfully receiving payments from clients and customers. You can calculate this key performance indicator by dividing your sales in total from your accounts receivable during that period. The result of your calculation should inform you whether you need to make corrections to the way your business manages receivables. It ensures that the collection of essential payments happens within the appropriate timeframes.

  1. Inventory turnover

If you are operating a warehouse facility or a manufacturing company, then inventory flows in and out. Without knowing the actual figures, it can be difficult to know the exact amount of turnover that is taking place. Therefore, the inventory turnover key performance indicator makes it possible to know what amount of your business' average inventory has been sold in a given period. You can calculate this KPI by dividing the number of sales your company makes within a given period by your business' average inventory within the same period. Therefore, this key performance indicator provides you with a clear picture of your business' production efficiency and sales strength.

  1. Return on equity

The return on equity (ROE) key performance indicator measures your business' net income to each unit of shareholder net worth. Your business' return on investment should indicate whether or not your net income is good enough for the size of your come. This should be clear when you compare your company's net income with the overall wealth available. It matters little what your business is worth now, as your current income should give you an indication of what your financial status will be like in the future. Therefore, if the return on equity ratio is improving, your shareholder can get some assurance that their investments are being properly utilised to grow the company.

  1. Quick ratio

The quick ratio KPI of your company will measure your business' ability to meet immediate short-term financial responsibilities by utilising its highly liquid assets. In other words, this is a way of measuring the financial flexibility and wealth of your company. Most experts consider this a more conservative evaluation of the fiscal health of a business as compared to the current ratio. The reason is that, when you calculate your business' quick ratio you do so by excluding inventories from assets. The quick ratio key performance indicator is considered by many as the true acid test Furthermore, the quick ratio KPI offers a less stressful way of assessing the health and wealth of your company. If you are new to adopting KPIs, the quick ratio key performance indicator is a great way to get a quick view of your company's overall health.

Copyright 2020. Article was made possible by site supporter Jeremy Bowler

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