3 Numbers Every Business Owner Should Know
What are the critical Key Performance Indicators (KPIs) each business owner should know and track? There are hundreds of statistics businesses could track. Here are my top 3:
- “Cash is King” is a common quote heard in business and it’s at the top of my list. The ability to pay vendors, employees, rent and yourself rests with this key measurement. It’s so important to understand what impacts cash flow. What payment terms do you have on your invoices when you bill customers? Are you negotiating favorable payment terms with your largest vendors to delay payment for as long as possible? If you are not tracking your line of credit and other bank balances you could be missing out on investing opportunities or potentially facing a cash short fall that could negatively impact your credit score.
- Gross Profit by product and customer is next on my list. Is your business focusing on selling the products or services that make you the most money? It’s easy to focus on your highest dollar products or your largest customers but are you certain that these are contributing the most to your bottom line? It’s common to have a large customer that demands extra time to pay, last minute orders and extra discounts on pricing which drives down your net profit plus probably takes more of your Teams’ time.
- Where are your customers coming from? You need tracking to determine what marketing or referral sources are driving business. Marketing dollars are limited, and you need to ensure you are maximizing the return for your investment.
Other measures to add toward the top of your list include: customer service scores, net income, production statistics, employee attrition, accounts receivable aging and account payable aging.
Peter Drucker’s quote – “If you can’t measure it, you can’t improve it” is a perfect end to this post. If you want your business to continue to improve on its path to excellence remember to measure it, track it and improve on it.
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