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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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.
Cash is King
For a micro business, the main KPI is how much is in the bank account. The rest is fluff.
2 or 3
Any more get forgotten.
As to what, well the trick is to identify the key control variables
The 5 pillars
You should develop 1 for each of the 5 business pillars of sales, service, standards, people and costs.
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.
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.
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.
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
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)
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