5 Accounting Measures you need to use to track your business success
1. Set up useful KPIs
Every business can use KPIs to track and measure their progress. Set up some relevant KPIs that track the objectives of your business will help you manage your business better.
KPIs can be used to track employees performances too, which can motivate them to be more involved in achieving the company’s goals.
2. Track your actual profits vs goals
Every business should have a business plan with a yearly goal figure. If you want to have an idea of the financial health of a business, you need to track these numbers monthly, not yearly.
Generate a report that will show you how the business is tracking against your monthly goal. Every accounting software has this option that will help you create these reports.
3. Know your cash flow
Cash flow is not the same as profitability. A lot of small business owners have not got a hold of this concept.
A business might have made a lot of sales and invoiced a lot of customers, so on paper, the business is successful and profitable.
However, the cash flow shows a snapshot of the actual cash in the bank. Cash flow statements show a projected flow of cash outflow for expenses that you anticipate to pay and inflows from sales.
If customers pay your late, this can disrupt your cash flow and you will have to find other resources to make up for the payments that you need to make. Managing your cash flow is important for the success of your business. All accounting programmes can generate monthly reports for cash flow or you can request ad hoc snapshots
4. Tracking your costs and expenses
Knowing and controlling your costs will enable you to control your business spending and which has direct impact on your profits.
By having a better view of your expenses, you will be able to make better decisions, better allocate resources and plan your income.
5. Track your profitability
I was watching an episode of Gordon Ramsay’s Kitchen Nightmares recently and it was an episode about a busy but failing restaurant. The chef was a larger than life guy and loved to produce enormous plates of food that his customers loved.
Gordon was perplexed about why they were failing. So he spent a day observing. He saw the chef was undercharging for those big plates of food. When Gordon asked him is he knew the cost of each dish he was producing, the chef/ owner did not know.
This seems to be a common problem with a lot of business owners. They don’t have a handle on the costs of their business and consequently, the profit.
If you are run a restaurant business, like this chef, you need to know how to cost up a plate of food and then price the dish by adding on a healthy profit margin. If not, you will lose money on every single transaction.
