The literature typically calls them KPIs, or Key Performance Indicators. I used to call them Critical Performance Factors, or CPFs, before the idea became popular and in every consultant’s toolkit. Whatever you call them, the financial KPIs should be collected and reported in a dashboard format, an essential addition to your monthly financial reporting package (if not needed even more frequently). Ideally, they’ll be presented in graph or chart form for easy absorption by the nonfinancial readers.
I’ve listed below the 10 KPIs we think are most important for nearly every business. That qualifier means, for example, you don’t calculate Inventory Turnover if you run a services business that doesn’t maintain a material amount of inventory, and you don’t need a Debt Coverage Ratio if you have no debt. Just a little common sense will weed those out. As for those that apply to your company, you will be amazed at the insights you’ll get if you capture, report, and look at these regularly. OK, enough generalization, here’s my list:
And now the kicker – your dashboard should chart each of these KPIs over time – for 6, 9, or 12 months, so you can see the trends developing before a leak turns into a gusher. Lots more details in Ch. 7 of my book if you want to read further.
Sorry for the length of this post, but I wanted you to get the tools we think best to measure your company’s financial performance, and after all, we know this stuff because…
We are Your CFO for Rent.