When advising small business clients on what KPIs to monitor, how many do you start with?

When advising small business clients on what...

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What's Key in KPIs, for advising small businesses do you start with 3 or 4 or more KPIs and what are the most useful in de-mistifying such an art?! In addition to  setting realistic targets, full blown budget, detailed forecasts or is it a matter of benchmarking or ever pushing for growth?

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By neileg
29th Aug 2013 11:17

Mmm...

KPIs for small business usually involve checking that there's enough to pay the wages, that there's enough stock to keep the sales going and that the phone isn't ringing off the hook with creditors chasing invoices.

I wouldn't even use the term KPI with most small business owners.

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By Tickers
29th Aug 2013 11:55

Cash is King

For a micro business, the main KPI is how much is in the bank account. The rest is fluff.

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By Rob Connell
29th Aug 2013 12:09

Necessary evil?

Seems the first 2 comments are for micro businesses and rather shortermism (we've all been there!). We have experienced clients where the bank for example has demanded certain KPIs, right down to product lines expenses vs revenue, or asked about current ratio or debtor days.

Any other views?

What about budget and forecasts, is this something also to be dismissed? Surely planning is a requirement for loans, equipment purchases, stock control etc.?

 

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By Chris Smail
29th Aug 2013 12:23

2 or 3

Any more get forgotten.

As to what, well the trick is to identify the key control variables

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By neileg
29th Aug 2013 12:30

@Rob

I think you're having this argument all on your own...

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By Steve McQueen
29th Aug 2013 12:32

The 5 pillars

You should develop 1 for each of the 5 business pillars of sales, service, standards, people and costs.

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Replying to jilbo:
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By Rob Connell
29th Aug 2013 13:35

managable

Thanks Steve this seems practical

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By zebaa
29th Aug 2013 12:38

cash & debtors

I agree with Tickers - cash is King. Next to that debtor days. With a bit of history to go on you will want to look at product lines, gross & net profit, total % stock & turnover of stock, liquid asset ratio, all the usual stuff.

Often admin is the last thing that gets done in a start up business and this issue tends to be the one where the only solution is to have a special person or - poor second choice - dedicated time.

I find that most suppliers tend to look after themselves and any failure to pay gets a swift reminder and / or put on stop. If it is due to an admin failure see my comment above. Sometimes suppliers will let you down & things like goods shortage can happen. Depends on the trade, but usually there are other suppliers. 

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Replying to ireallyshouldknowthisbut:
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By Rob Connell
29th Aug 2013 13:36

covered!

Great thanks, I think we have those covered

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By DMGbus
29th Aug 2013 13:50

GP %age

From two viewpoints monitoring the Gross Profit percentage is important for some businesses.

1.  For the business owner to be aware of what his GP%age is as compared to the "going rate" for his/her type of trade

2.  For purposes of assurance for declared profits on tax returns

 

A low GP%age can arise for several reasons...

# Internal fraud (tax fraud by proprietor, supplier fraud or employee fraud)

# Poor inventory management

# Inaccurate records (overhead costs booked to cost of sales)

# Duplicated purchases

# Omitted sales

# Cut-off point errors

# Incorrect stock carrying value

# Books balanced to the bank statements, but a £10k year end unpresented cheque to a supplier omitted from the accounts as cashbook written up on basis of being a copy of the bank statement transactions.

An inexperienced new business owner can suffer from one or more of the above issues and if unaware of the expected GP%age for his/her trade may well carry on blissfully unaware of serious problems within his/her business.

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By Peter Kilvington
03rd Sep 2013 12:41

For pubs

Wet margin %

Dry margin %

Wage %

Rent %

Cash

Creditors

Stock holdings in days sales by product line.

Waste

 

As we also do quite a lot of pubs we graph weekly sales as an internal process.  Those pubs bucking the trend need to be looked out so see what they are doing right or wrong.  Before you ask all pubs do follow a general turnover trend, it does not matter if you are wet or dry led, managed, tenanted etc.

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7om
By Tom 7000
03rd Sep 2013 12:54

small business

is it

 

the window cleaner... KPI...is there a hole in my bucket

 

or a small business with £6.4m turnover  £1.4m PBTand £3.24m of assets and 120 staff, in which case please have the monthly accounts emailed to the yacht email address with the usual management report

 

Theres 2 either way...even if you are BP/ Google

a) Have we got enough cash and

b)have we sold anything ( or going to sell anything)

 

Everything else is fluffy niceness

 

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By duncanphilpstate
03rd Sep 2013 13:58

Here's my two-penny worth...

 

Cash - so what's in the bank? (can I eat this week?)

Revenue - are we selling things? (if not, we won't eat next week...)

GP % - but not selling too cheaply? (which is also a way to "game" the revenue results)

Debtors - are we collecting for what we've sold? (which also covers not inflating sales with fictious items)

Stock/WIP turnover by line - are we doing the wrong things? (is someone buying useless unsaleable rubbish? or keeping the factory busy by making rubbish?)

NP % - are our expenses under control? (no unexpected increase/decrease)

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7om
By Tom 7000
03rd Sep 2013 14:17

@duncan

Thats a lot ;)

 

remember how to counts

 

One

two

three

a lot

too many

 

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By coolmanwithbeard
04th Sep 2013 07:15

small business - surely we monitor?

I would agree with the above regarding few as "fluff" is really the attitude of the client too - they need to see purpose behind any extra monitoring or work.

 

So last week it was GPP% with a client where it was awful and the reason for her making a loss next week with another client it will be what's in stock I know!

The point is we monitor them and choose which ones we highlight with the client.  I use Digita Accounts pro and I can produce a five year summary of all key ratios along with the accounts all side by side in columns; and so I can see how the new accounts look and what has improved or other wise, or look at particular costs or income or other issue to review with the client. This then becomes my added value advice for the year giving them something to work at to improve things. The advice is tailored and I find even the ones who aren't really interested in their accounts will take on board that portion control in their chippy is an issue as they can't control the price they pay for stuff and have to compete on price.

 

This leads to action so the sandwich shop with the awful GPP is writing up her books now right up to date so we can look at the position so far this year and then monitor changes she makes to see their effectiveness.

 

M

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By Rob Connell
19th Sep 2013 06:08

Thanks for the comments - help us shape performance management

Thanks everyone for their really constructive comments on KPIs, this is helping us and our software development at Smeebi to really identify what areas to focus on and as stated cut out the fluff.

Cash is obviously number one and we'll be giving renewed focus on helping to visualize companies current cash situation and what it will likely be in the near future.

I understand the sentiment that cash, gross profit or product margin, stock choice / control, getting paid on time are all important and something that the advisor can get the small business owner to comprehend (perhaps not all at once) and start making informed decisions (more time chasing payments, change prices, stop buying unpopular items etc.).  

 

Outside of the small companies, it seems from these comments that larger companies owners don't have the same concerns, a good historical reminder is that monoliths like IBM almost went under due to running out of cash.

 

I don't want to use this as a plug for Smeebi's services, but an offer to partner with us. So if anyone wants some help putting any of these KPIs together and how to display and forecast in a more automated way then please be in contact [email protected], this offer is available to accountants, other advisors and software vendors wanting to enhance their services. We are also planning to add a new style of cash flow report so again to get involved please be in contact.

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