Why KPIs matter for your small business

Just as a doctor combines multiple health indicators to understand your overall wellbeing, you need a set of KPIs working together. They give you the full picture of your business health.

A good KPI is one you can actually use to improve your business.

Not every metric qualifies. The best KPIs follow the SMART framework: they’re Specific, Measurable, Achievable, Relevant, and Time-bound.

How many KPIs should you track?

Most small businesses do best with four to six KPIs. This gives you a clear picture without overwhelming you with data.

• New business: begin with three to four KPIs tied to your immediate priorities
• Growing business: expand to six to eight KPIs, possibly organized by department
• Established business: track eight to 12 KPIs with regular reviews to stay focused

While there are many KPIs that you can track, quality beats quantity when it comes to KPIs. Too many metrics complicate the picture and waste time.

Focus on what truly moves your business forward in the area that you want to track.

Essential Financial Health KPIs

For your financial health, I would recommend tracking these KPIs below:

• Gross Margin Percentage: Measures core profitability after delivery costs using the formula: (Revenue – Cost of Goods Sold) ÷ Revenue.
• Operating Profit Margin: Shows how much profit remains after paying daily operating expenses.
• Operating Cash Flow: Tracks the actual cash entering and leaving your accounts each month.
• Accounts Receivable Days (AR Days): Calculates how fast customers pay their invoices using: (Accounts Receivable ÷ Total Credit Sales) × 30.
• Accounts Payable Days (AP Days): Monitors how long your business takes to settle vendor bills

If you need help structuring a bookkeeping system that will give you accurate insight into the financial health of your business, head over to our Discovery Form for a complimentary consultation.