Mastering Your Metrics

There’s no value in a KPI that’s measuring store-based cash flow when most of your profits are made from website traffic. No matter whether you’re a new small business or Fortune 500 company… Your business goals, plans, and even employees will change over time. Is it accurate in reflecting and predicting your business’ performance?

When you think of KPIs, chances are you’re thinking of quantitative performance indicators… AKA targets that can be measured by numbers. For example, the average order value of your customers’ carts, your business’s gross profit margin, or how many new customers you’ve acquired in a set period. We continue our financial metrics examples with the employee satisfaction levels depicted through the net promoter score in our visual on the right.

Just how long does it take for an invoice to make its way through your AP system to approval and payment? A subset of your total invoice processing time, this KPI should be as low as you can get it. There’s no sense in losing valuable discounts, or paying costly late payment fees, because an invoice got “hung up” in the system. The Ardent Partners report set the average amount of time needed to process a single invoice at 10.6 days.

There needs to be a good time tracking system in place so that chargeable and non-chargeable time can be properly broken out. Realization rate is another metric used to calculate client profitability. Realization rate compares the actual amount invoiced to the client to the chargeable time spent working on the engagement.

Example Kpis

Automation of accounts receivable procedures can help reduce this value in the long run. A higher ratio for accounts receivable turnover is better than a lower ratio because it shows your customers are paying you faster. As we’ve seen above, ratios can vary significantly between different industries and business models but they are usually higher for low-cost goods and services. Financial KPIs measure business performance against specific financial goals such as revenue or profit. They show the financial health of a business against internal benchmarks, competitors, and even other industries. Financial KPIs are widely used in strategic planning and reporting to help people decide where to focus their investment. Key performance indicators and key performance metrics/measures are often used interchangeably.

It’s also worth considering aspects such as customer acquisition cost and return on investment for marketing, sales qualified leads, and other aspects. In other words, your key performance indicators define your organization’s strategy, create focus, and provide actionable targets.

Accounts Receivable Turnover Ratio

The Total Cost of the Finance Function displays the ratio of the total cost of financial activities compared to the total revenue. An organization’s financial costs include personnel, managing systems, overhead, and any other expenses necessary for the day-to-day operation of the finance organization. Operating cash flow is calculated by adjusting net income for things like depreciation, changes in inventory and changes to accounts receivable.

• This KPI ensures that there are enough initiatives being done to ensure accurate, realistic, and collaborative budgets throughout the year.
• There are a lot of companies that close down due to the sole reason that management at the senior level fails to identify unethical practices of the accountants.
• Well, the same concept can be applied to your accounting department.
• A company’s accounts receivable division manages the money that keeps the business running.
• Use these balanced scorecard KPI templates to get your KPI scorecard started.
• The fastest and most efficient way to keep track of an organization’s business performance is to set up a KPI dashboard that displays financial metrics.

The reason why ROI is so popular is because it’s versatile and can be used to measure something specific, such as a marketing campaign. Incurring too much debt can put your company in a dangerous situation. You can always adjust the number of days in the formula to get the ratio for a month or quarter, as opposed to a full year. Once you close the books, you need to prepare accurate financial statements.

Gross Profit Margin

Another measure of operating profit is EBIT, which is Earnings Before Interest and Taxes. Explaining to your employees why you’re measuring what you’re measuring is vital when it comes to making and meeting KPIs that matter. Later in this article, I will share the 5 under-used metrics every accounting firm should be tracking each month to run a leaner, more profitable company. And at the end of the article, I have a link for you to download The KPI Toolkit – 10 Essential Money Metrics for Accountants.

Leaders can use and analyze these metrics to develop more effective financial strategies to achieve organizational or departmental goals. By continuously monitoring KPIs, the business can assess what works and what still needs improvement. The budget variance is one of our next financial KPI examples which expresses the difference between budgeted and actual figures for a specific accounting category. It can be favorable or unfavorable, each caused by various internal and external factors such as labor costs, poorly planned budget, natural disasters, changing business conditions, etc.

Your metrics are measurable components that add value to your business but aren’t crucial for success. This means that every KPI is a metric, but not every metric is a KPI. In other words, as your business goals and processes evolve, your KPIs should evolve as well. Keep a continuous eye on your key performance indicators to check they’re still relevant and whether the data sources for these metrics are also updated as required.

Why Organizations Need To Track Accounts Payable Kpis?

The Gross Profit Margin measures the proportion of money left over from revenue after accounting for the cost of goods sold. This metric is a great indicator of a company’s financial health, indicating whether a business is capable of paying its operating expenses while having funds left for growth. Internal KPIs for the accounting department measure the department’s performance in its relationship with its internal stakeholders. Measuring the time it takes individual employees to respond to inquiries, resolve problems and provide reports helps identify workers who may need coaching or training. An accounting organization may also use surveys to ask its customers to rate their satisfaction with the accounting services provided and to invite both praise and constructive criticism.

By submitting this form, you agree that PLANERGY may contact you occasionally via email to make you aware of PLANERGY products and services. Fortunately, automation helps streamline this metric considerably, both by simplifying the routing process and generating reminders in those instances when a delay does occur. Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business. Alexandra Twin has 15+ years of experience as an editor and writer, covering financial news for public and private companies. Mary grew up in Chicago and has lived in Las Vegas, NV, and Crowley, TX, before moving to Rio Rancho, NM, where she currently lives.

New Kpis Every Accounting Practice Must Track

Focusing on relevant KPIs will help streamline the decision-making process. To calculate the expected lifetime profit from the customer, you’ll need to consider a customer’s purchasing frequency and average purchasing price. Your costs to acquire the customer can include things like marketing and onboarding accounting kpis examples costs. The actual variables that make up these components will vary from company to company. A current ratio of less than 1% is significantly concerning, as it means you don’t have enough cash coming in to pay your bills. Tracking this indicator may give you a warning of cash flow problems.

It’s certainly not unheard of for businesses to pick a KPI to measure, only to realize that they’ve wasted time, resources, and money tracking indicators that really aren’t key to the business objectives. High-level performance indicators relate to the performance of an entire business. In contrast, low-level key performance indicators will look at the smaller picture, monitoring departmental or even individual performance. Key Performance Indicators Understanding Key Performance Indicators Also referred to as key success indicators , KPIs vary between companies and between industries, depending on performance criteria. Types of Key Performance Indicators Key performance indicators tied to the financials typically focus on revenue and profit margins. Finance KPIs evaluates the key workings of the finance department like budgetary and forecasting, payroll, tax, budgeting, and financial planning.

KPI Examples – 84 Key Performance Indicators For Your Business Aug 30, 2018. Assets such as accounts receivables, are weighted against your current liabilities, including accounts. READ MORE on Financial KPIs – The 12 Key Metrics You Should Be Tracking Mar 26, 2018. KPI Features for Finance/Accounting Departments KPIs can provide company managers with two sets of info. That includes how efficiently the department is operating and making sure the employees’ behavior is lined up with the company’s goals.

If you don’t know the answer to these questions, it’s likely you’re not tracking the right key performance indicators . Over time, finance managers and leaders should evaluate the trend of these key financial close metrics to see how teams are progressing each month. Consistently testing these key metrics enables team members to capture quantitative data for all of their close processes and tasks. This accounting metric identifies the cost of managing the entire financial close process as a ratio of the total organizational revenue. Regardless of how much your company is currently worth , your current net income will determine its probable worth in the future.

These metrics will evaluate the effectiveness of corporate and regulatory compliance controls across the organization. Key performance indicators that measure the effectiveness of specific processes are key to evaluating core accounting processes at a granular level. This enables leaders to encounter opportunities to efficiently automate any controls or bottlenecks. These key finance KPIs measures the effectiveness of the close cycle, specifically around how many issues are being raised against the total number of close tasks. As organizations scale their operations, it is crucial to keep an eye on issues encountered throughout the close — those issues may be a sign that workflow inefficiencies are piling up.

• This page contains an updated list of the most popular examples of key performance indicators available on KnowledgeLeader.
• Input metrics look at the resources required for a business project.
• A KPI is a metric that measures something significant, like how well a business is achieving its business goals.
• When you master the metrics that matter, you set your business up to grow and thrive.
• Return on assets is an indicator of how profitable companies are in relation to their total assets.
• CloudUnlock the power of your data strategy now and in the future with cloud innovation.

I will monitor this by checking my CRM system monthly and inputting the number of new customers I’ve acquired to check my progress. These are more common, quantitative KPIs that you’re likely to find in most business settings. An excellent directional KPI example could be Facebook ad clickthrough rates. If the numbers aren’t improving in line with your directional KPIs, you need to ask why. This could involve figuring out whether a specific metric is improving, declining, or staying the same.

Opposite to the receivables, the Current Accounts Payable metric indicates the sum that a business owes to suppliers, banks, and creditors. It can be broken down by business departments, divisions, and projects, to have a more detailed overview of current payables. Working Capital is calculated by subtracting current liabilities from current assets . The Net Profit Margin reflects on the profitability of a business and shows how fast the company can grow in the long-term prospect. This metric shows how efficient is a company at generating profit compared to its revenue. Frequently calculated as a percentage, this KPI indicates how much of each dollar earned by the company translates into profits.

They also help leaders develop key objectives and keep their employees focused on measurable goals. Financial software that provides automated, accurate, real-time KPIs keeps the company moving toward those goals, rather than getting lost in mounds of data and reports.

Tracking and measuring KPIs is just one way to build a better practice. Download our free whitepaper, Adopting a Transformative Practice Management Mindset for details on five strategic areas you can leverage to keep your firm ahead of the curve. The best way to use KPIs is to create them specific to your firm and your expectations. If you’re not sure where to start, we’ll provide you with a few pointers.

And measuring performance is the first step to maximizing the impact of your AP department. Combined with accounts payable automation, KPIs are your ticket to improved efficiency, lower processing costs, and a stronger bottom line.