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Which Finance KPIs can drive insight into performance?

20th May 2021
Brought to you by
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The Access Group provides integrated business management software.

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Key Performance Indicators (KPIs) for Finance teams provide a valuable link between evaluating business strategy and understanding if execution plans are actually succeeding. But which KPIs should CFOs be focused on? And how can KPIs be used most effectively to reveal insights and further drive performance?

KPI metrics are commonly used to periodically track and evaluate business performance against specific goals as well as to gauge the overall performance. Although KPIs are generally an effective way to track progress, it is also important to ensure focus is in the right place. Set too many and it’s impossible to properly keep track and implement change quickly enough; set too few and business leaders miss out on valuable insight.

The best mix of KPIs will obviously vary from one business to the next – but there are some crucial ones that apply across the board for good business financial management, as the following examples demonstrate:

Burn rate

Your company burn rate shows the speed at which cash is being spent. Whether assessed monthly, daily or yearly, monitoring burn rate regularly can be extremely useful as it reveals whether your business can maintain its rate of spending over time. This is a key strategic performance priority.

However, burn rate is an example of a KPI which needs cross-departmental collaboration to show the true picture. For example, Finance may see a printed-out list of outgoings from Marketing, but without a system that allows the two teams to collaborate both qualitatively and quantitatively, Finance may not know that spending is particularly high because of a strategic marketing priority that month. Collaboration is necessary for an accurate, contextualised burn rate calculation.

Inventory turnover

There are several different ways to work out your inventory turnover – essentially how quickly you can replenish product stock or service capacity. Keeping track of inventory turnover is particularly effective from a performance point of view because it helps motivate people. Once you have worked it out, you can communicate the results to your logistics group or similar teams to give them a stock turnover target to work towards.

Payment error rate

This reflects the proportion of failed payments from your company to those that you owe. Payment error rates often occur because of problems with sign-offs, manual keying errors and other issues. A high payment error rate is a wake-up call for Finance and the senior leadership team that systems need to be changed – supporting the business case for a Finance software package that can automate these functions and improve collaborative workflows.

The 2021 perspective

KPIs have always been a crucial way for CFOs and business leaders to find out what is working well and what is causing problems, and how and when to move from one stage of development to the next. When faced with economic uncertainty and changeable business conditions, keeping a close eye on KPI performance is even more important.

But in addition to a challenging business climate over the last year, CFOs have also had to deal with the need for remote working. In some cases, this has been the final straw for outdated Finance systems which have struggled to adapt.

Integrated business systems and modern Finance software automatically allows for the implementation of tailored KPIs and dashboards which offer accurate and up-to-date views in real time. This effectively removes the need for CFOs to spend significant amounts of time ‘crunching the numbers’ as the software eliminates much of the time-consuming data element and makes way for human insight and interpretation.

Of course monitoring KPIs is not a goal in itself, it should serve a purpose: tracking the pulse of company performance. Providing Finance leaders and business managers with access to information from different strands of the company makes it possible to create even more effective KPIs that improve decision-making and enable all your internal operations to thrive.

Does your Finance team need to implement and monitor KPIs effectively? Access Finance software offers the accuracy and flexibility you need to gain insight into business progress. Why not contact us for more information or a free demo?

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