As a business owner, it’s important to track your financial key performance indicators (KPIs) so you can stay on top of your business’s growth and performance.
No matter your industry, one of the most important indicators of a business’s health is how it’s doing with its financial KPIs.
It can be daunting if you’re not sure which you should be paying attention to, but keep reading to get a better understanding of financial KPIs for your business. In this article, we’ll go over some of the most important financial metrics to track and why they’re so important so that you can stay in great shape in 2022.
The Importance of Metrics
Why is keeping track of financial KPIs important? There are a few reasons.
Firstly, it allows you to see how your business is performing financially over time. This can help you identify trends and changes in your financial health so that you can go back to your business plan and adjust your strategy as needed.
Secondly, tracking financial KPIs gives you insights into what’s working and what isn’t when it comes to your business finances. This means you can focus your efforts on the areas that are bringing in the most revenue and make changes where necessary.
Finally, financial KPIs are a key ingredient for making data-driven decisions. By understanding how different aspects of your business financials impact one another, you can start to make smarter choices about where to allocate your resources.
Now that we know why it’s important to keep track of financial metrics, we’ll help you determine which KPIs are critical to the success of your business.
KPI #1: Revenue
Revenue is, of course, the first financial metric you should be tracking. This KPI will give you a clear picture of how much money your business is bringing in each month.
Monitoring your revenue will help you make informed decisions about where to invest your resources. Take into consideration all sources of revenue, from sales, services, even equity and interest. Knowing where your revenue comes from and how much you bring in each month will help you set realistic goals for your team.
It’s also a good indicator of whether your marketing and sales efforts are effective. If you’re seeing a decline in revenue, it could be time to revisit your marketing strategy or review how your product can drive sales.
KPI #2: Operating Expenses
Your operating expenses are all the costs associated with running your business, from rent to salaries, advertising, and equipment. Keeping track of your operating expenses is important because it allows you to see where your money is going and identify areas where you can cut costs.
If your operating expenses are higher than your revenue, it’s time to take a close look at your budget and see where you can make some cuts. Reducing your operating expenses can be a great way to improve your bottom line.
It’s challenging to run a profitable business if your operating expenses are out of control, so it’s important to keep a close eye on this KPI.
KPI #3: Cash Flow
It’s no surprise that one of the most important financial KPIs to keep track of in a business is how well you manage its cash flow. This metric measures the money coming into and out of a business, and it’s important to track because it can help you see whether or not your business is generating enough revenue to cover its expenses.
This is different from revenue, as in certain businesses you may have generated revenue, but have not yet received payment to your account. While revenue is important, cash flow helps keep the day-to-day operations of the business running.
If your cash flow is negative, it means you’re spending more money than you’re making, which can quickly put your business in danger. On the other hand, if your cash flow is positive, it means you’re bringing in more money than you’re spending, which is a good sign for the health of your business. Put those extra cash to work and you’re on the way to growing your business.
KPI #4: Budget versus Actual Expenditures
Actual expenditures are obviously important to stay on top of when you’re running a business. But the difference between what you budgeted and the actual money you spend for that item is also important.
While we all hope we stick to our budgets, oftentimes it’s not realistic. By understanding where you overspend or underspend in the past, you can make better decisions about your business going forward.
A budget deficit (spending more money than your budget) is important to keep note of to ensure that you budget more accurately in the future. But you should also find out the reason why your business overspent in the first place, and see if it’s a problem you can avoid in the future.
A budget surplus (budgeting more money than you spent) may sound like a great idea, but it also means that money could have been invested in another part of your business to fast-track your growth.
KPI #5: Break-Even Point
Your business’ financial break-even point is an important metric to track because it tells you how much revenue your business needs to bring in to cover all its costs.
It can help you determine if you need to restructure your pricing or have a better strategy to bring in revenue. It’s an important metric for planning our marketing initiatives, so you know if a planned campaign fits your needs without overextending your budget.
Knowing your break-even point is not just to ensure your revenue can cover all expenses. Another important reason is to help you plan on creative strategies and business proposals to surpass it and increase profits. Knowing when you’ve hit your financial break-even point is a huge relief for business owners because it takes the guesswork out of whether or not your business is sustainable.
Staying on Top of Your Metrics
There are many other financial KPIs that businesses should track, but these five are a great place to start.
Staying on top of your metrics will be easier and save you valuable time with valuable tools like invoice management software such as InvoiceBerry. Move your customers easily through your process, from a quotation into an automated invoice and helpful reminders so your revenue’s always healthy.
Monitoring your progress is crucial to the success of your business, which is why appropriate financial reports from a tool like InvoiceBerry is key to getting to know your KPIs better.
These KPIs will help you identify areas that need improvement so you can make changes before it’s too late. With healthy financial KPIs and reliable monitoring, businesses can expect to see growth in their bottom line and a more secure future for their company.
